UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
~~Washington, D. C.~~

WASHINGTON, DC 20549

~~___________~~

FORM 10-Q
~~___________~~

(Mark One)

~~(Mark One)~~☒
~~[X]~~	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

	~~For the quarterly period ended September 30, 2017~~☐

~~[ ]~~	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

~~For the transition period from ____________________ to ____________________~~

Commission File Number:000-55117

VIRGINIA NATIONAL BANKSHARES ~~CORPORATION~~
CORPORATION

(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)

Virginia	46-2331578
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

404 People Place ~~Charlottesville, Virginia~~	~~22911~~
Charlottesville, Virginia	22911
(Address of principal executive ~~offices)~~offices)	(Zip Code)

~~(434) 817-8621~~
~~(Registrant's~~

Registrant’s telephone number, including area ~~code)~~code: (434) 817-8621

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

VABK

OTCQX

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ~~☐No~~☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

☒ Yes ~~☐No~~☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	☐	Accelerated filer	☐	☒

Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company		☒

Emerging growth company	☐	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☐ No ☒ No

Indicate by check mark whether the ~~number of shares outstanding of each~~registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the ~~issuer’s classes~~Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of August 6, 2020, the registrant had 2,714,273 shares of common stock, ~~as of November 7, 2017:~~$2.50 par value per share, outstanding.

~~Class of Stock~~	~~Shares Outstanding~~
~~Common Stock, Par Value $2.50~~	~~2,410,680~~

VIRGINIA NATIONAL BANKSHARES CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Part I. Financial Information
	Item 1 Financial Statements		Page 3
		Consolidated Balance Sheets (unaudited)	Page 3
		Consolidated Statements of Income (unaudited)	Page 4
		Consolidated Statements of Comprehensive Income (unaudited)	Page 5
		Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	Page 6
		Consolidated Statements of Cash Flows (unaudited)	Page 7
		Notes to Consolidated Financial Statements (unaudited)	Page 8

	Item 2 Management’s Discussion and Analysis of Financial Condition andResults of Operations		Page 3135
		Application of Critical Accounting Policies and Estimates	Page 3137
		Financial Condition	Page 3237
		Results of Operations	Page 3744

	Item 3 Quantitative and Qualitative Disclosures About Market Risk		Page 4451

	Item 4 Controls and Procedures		Page 4452

Part II. Other Information
Item 1 Legal Proceedings	~~Item 1Legal Proceedings~~	Page 4452
Item 1A Risk Factors	~~Item 1ARisk Factors~~	Page 4452
	Item ~~2Unregistered~~2 Unregistered Sales of Equity Securities and Use of Proceeds		Page 4452
	Item ~~3Defaults~~3 Defaults Upon Senior Securities		Page 4552
	Item ~~4Mine~~4 Mine Safety Disclosures		Page 4552
Item 5 Other Information	~~Item 5Other Information~~	Page 4552
Item 6 Exhibits	~~Item 6Exhibits~~	Page 4553

Signatures		Page 4654

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED BALANCE SHEETS

(~~dollars~~Dollars in thousands, except per share data)

September 30, 2017 December 31, 2016 *
ASSETS (Unaudited)
Cash and due from banks $ 7,143 $ 10,047
Federal funds sold 3,155 28,453
Securities:
Available for sale, at fair value 71,049 56,662
Restricted securities, at cost 2,709 1,709
Total securities 73,758 58,371
Loans 501,024 482,135
Allowance for loan losses (3,824 ) (3,688 )
Loans, net 497,200 478,447
Premises and equipment, net 7,437 8,046
Bank owned life insurance 14,229 13,917
Goodwill 372 372
Other intangible assets, net 604 680
Accrued interest receivable and other assets 6,430 6,697
Total assets $ 610,328 $ 605,030
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits:
Noninterest-bearing $ 166,544 $ 176,098
Interest-bearing 98,528 96,869
Money market deposit accounts 128,149 136,658
Certificates of deposit and other time deposits 114,049 115,026
Total deposits 507,270 524,651
Repurchase agreements and other borrowings 37,001 19,700
Accrued interest payable and other liabilities 1,208 1,625
Total liabilities 545,479 545,976

Shareholders' equity:
Preferred stock, $2.50 par value, 2,000,000 shares authorized, no shares outstanding - -
Common stock, $2.50 par value, 10,000,000 shares authorized; 2,410,680 and 2,368,777 issued and outstanding at September 30, 2017 and December 31, 2016, respectively 6,027 5,922
Capital surplus 22,036 21,152
Retained earnings 37,082 32,759
Accumulated other comprehensive loss (296 ) (779 )
Total shareholders' equity 64,849 59,054
Total liabilities and shareholders' equity $ 610,328 $ 605,030

	June 30, 2020			December 31, 2019*
ASSETS	(Unaudited)
Cash and due from banks	$	10,116		$	14,908
Federal funds sold		24,771			4,177
Securities:
Available for sale, at fair value		102,772			114,041
Restricted securities, at cost		1,736			1,683
Total securities		104,508			115,724
Loans		632,394			539,533
Allowance for loan losses		(4,917	)		(4,209	)
Loans, net		627,477			535,324
Premises and equipment, net		5,669			6,145
Bank owned life insurance		16,628			16,412
Goodwill		372			372
Other intangible assets, net		374			408
Accrued interest receivable and other assets		9,669			9,157
Total assets	$	799,584		$	702,627
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits:
Noninterest-bearing	$	197,227		$	166,975
Interest-bearing		136,274			122,994
Money market and savings deposit accounts		284,101			221,964
Certificates of deposit and other time deposits		96,599			109,278
Total deposits		714,201			621,211
Accrued interest payable and other liabilities		6,291			5,309
Total liabilities		720,492			626,520

Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $2.50 par value, 2,000,000 shares authorized, 0 shares outstanding		-			-
Common stock, $2.50 par value, 10,000,000 shares authorized; 2,714,273 (including 26,268 nonvested shares), and 2,692,005 (including 4,000 nonvested shares) issued and outstanding at June 30, 2020 and December 31, 2019, respectively		6,720			6,720
Capital surplus		32,307			32,195
Retained earnings		39,102			37,235
Accumulated other comprehensive income (loss)		963			(43	)
Total shareholders' equity		79,092			76,107
Total liabilities and shareholders' equity	$	799,584		$	702,627

*	Derived from audited Consolidated Financial Statements

See Notes to Consolidated Financial Statements

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(~~dollars~~Dollars in thousands, except per share data)

(Unaudited)

         For the three months ended       For the nine months ended
September 30, 2017       September 30, 2016 September 30, 2017       September 30, 2016
Interest and dividend income:
Loans, including fees $                      5,348 $                       4,385 $                  15,454 $                  13,012
Federal funds sold 30 45 208 101
Investment securities:
Taxable 328 237 838 762
Tax exempt 78 78 203 242
Dividends 23 23 69 67
Other 1 3 7 7
Total interest and dividend income 5,808 4,771 16,779 14,191

Interest expense:
Demand and savings deposits 108 68 341 203
Certificates and other time deposits 179 157 516 474
Repurchase agreements and other borrowings 38 9 58 33
Total interest expense 325 234 915 710
Net interest income 5,483 4,537 15,864 13,481
Provision for (recovery of) loan losses 168 104 213 (291 )
Net interest income after provision for (recovery of) loan losses 5,315 4,433 15,651 13,772

Noninterest income:
Trust income 394 388 1,171 1,174
Advisory and brokerage income 132 106 387 287
Royalty income 22 11 198 20
Customer service fees 225 240 678 686
Debit/credit card and ATM fees 206 223 650 653
Earnings/increase in value of bank owned life insurance 103 111 312 331
Fees on mortgage sales 55 41 104 156
Gains (losses) on sales and calls of securities (78 ) 181 (74 ) 189
Gains (losses) on sales of other assets - 6 - (21 )
Other 99 106 308 312
Total noninterest income 1,158 1,413 3,734 3,787

Noninterest expense:
Salaries and employee benefits 1,998 1,939 5,770 5,704
Net occupancy 461 465 1,390 1,413
Equipment 124 134 398 401
Other 1,334 1,283 3,897 3,859
Total noninterest expense 3,917 3,821 11,455 11,377

Income before income taxes 2,556 2,025 7,930 6,182
Provision for income taxes 811 629 2,530 1,921
Net income $ 1,745 $ 1,396 $ 5,400 $ 4,261

Net income per common share, basic $ 0.73 $ 0.59 $ 2.26 $ 1.80
Net income per common share, diluted $ 0.72 $ 0.59 $ 2.24 $ 1.79

	For the three months ended					For the six months ended
	June 30, 2020		June 30, 2019			June 30, 2020		June 30, 2019
Interest and dividend income:
Loans, including fees	$	6,156	$	6,105		$	12,027	$	12,202
Federal funds sold		10		74			95		93
Investment securities:
Taxable		229		246			738		498
Tax exempt		92		76			167	157
Dividends		24		31			48		57
Total interest and dividend income		6,511		6,532			13,075		13,007

Interest expense:
Demand and savings deposits		390		463			1,085		844
Certificates and other time deposits		366		586			860		1,045
Repurchase agreements and other borrowings		—		22			—		89
Total interest expense		756		1,071			1,945		1,978
Net interest income		5,755		5,461			11,130		11,029
Provision for (recovery of) loan losses		378		(64	)		1,143		620
Net interest income after provision for (recovery of) loan losses		5,377		5,525			9,987		10,409

Noninterest income:
Trust income		228		402			538		749
Advisory and brokerage income		163		156			341		292
Royalty income		24		4			71		8
Deposit account fees		143		192			322		373
Debit/credit card and ATM fees		134		189			291		346
Earnings/increase in value of bank owned life insurance		109		466			216		576
Fees on mortgage sales		30		56			77		86
Gains on sales of securities		590		64			643		64
Loan swap fee income		124		38			633		46
Other		81		133			163		219
Total noninterest income		1,626		1,700			3,295		2,759

Noninterest expense:
Salaries and employee benefits		2,258		2,321			4,682		4,667
Net occupancy		452		444			904		923
Equipment		136		114			267		231
Data processing		338		330			666		646
Other		1,220		1,476			2,428		2,629
Total noninterest expense		4,404		4,685			8,947		9,096

Income before income taxes		2,599		2,540			4,335		4,072
Provision for income taxes		511		425			843		711
Net income	$	2,088	$	2,115		$	3,492	$	3,361
Net income per common share, basic *	$	0.77	$	0.79		$	1.29	$	1.25
Net income per common share, diluted *	$	0.77	$	0.79		$	1.29	$	1.25
Weighted average common shares outstanding, basic *		2,710,019		2,688,005			2,701,411		2,683,122
Weighted average common shares outstanding, diluted *		2,711,017		2,688,965			2,702,311		2,687,391

*	Share data has been retroactively adjusted to reflect the 5% stock dividend effective July 5, 2019.

See Notes to Consolidated Financial Statements

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(~~dollars~~Dollars in thousands)

(Unaudited)

    For the three months ended     For the nine months ended
September 30, 2017     September 30, 2016 September 30, 2017     September 30, 2016
Net income $                   1,745 $                   1,396 $                     5,400 $                   4,261

Other comprehensive income (loss)

Unrealized gain (loss) on securities, net of tax of ($105) and $224 for the three and nine months ended September 30, 2017; and net of tax of $54 and $388 for the three and nine months ended September 30, 2016 (206 ) 104 434 756

Reclassification adjustment net of tax of $27 and $25 for the three and nine months ended September 30, 2017; and net of tax of ($62) and ($64) for the three and nine months ended September 30, 2016 51 (119 ) 49 (125 )

Total other comprehensive income (loss) (155 ) (15 ) 483 631

Total comprehensive income $ 1,590 $ 1,381 $ 5,883 $ 4,892

	For the three months ended						For the six months ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net income	$	2,088		$	2,115		$	3,492		$	3,361

Other comprehensive income

Unrealized gain on securities, net of tax of $512 and $403 for the three and six months ended June 30, 2020; and net of tax of $141 and $342 for the three and six months ended June 30, 2019		1,920			537			1,514			1,291

Reclassification adjustment for realized gains on sales of securities, net of tax of ($124) and ($135) for the three and six months ended June 30, 2020; and net of tax of ($13) and ($13) for the three and six months ended June 30, 2019		(466	)		(51	)		(508	)		(51	)

Total other comprehensive income		1,454			486			1,006			1,240

Total comprehensive income	$	3,542		$	2,601		$	4,498		$	4,601

See Notes to Consolidated Financial Statements

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE ~~NINE~~THREE AND SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2020 AND ~~2016~~
2019

(~~dollars~~Dollars in thousands, except per share data)

(Unaudited)

Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income (Loss) Total
Balance, December 31, 2015 $ 6,031 $ 22,214 $ 28,170 $ (118 ) $ 56,297
Stock options exercised 28 151 - - 179
Stock purchased under stock repurchase plan (137 ) (1,123 ) - - (1,260 )
Stock option expense - 20 - - 20
Cash dividends declared ($0.36 per share) - - (850 ) - (850 )
Net income - - 4,261 - 4,261
Other comprehensive income - - - 631 631
Balance, September 30, 2016 $ 5,922 $ 21,262 $ 31,581 $ 513 $ 59,278

Balance, December 31, 2016 $ 5,922 $ 21,152 $ 32,759 $ (779 ) $ 59,054
Stock options exercised 105 876 - - 981
Stock option expense - 8 - - 8
Cash dividends declared ($0.45 per share) - - (1,077 ) - (1,077 )
Net income - - 5,400 - 5,400
Other comprehensive income - - - 483 483
Balance, September 30, 2017 $ 6,027 $ 22,036 $ 37,082 $ (296 ) $ 64,849

								Accumulated
								Other
	Common		Capital		Retained			Comprehensive
	Stock		Surplus		Earnings			Income (Loss)			Total
Balance, December 31, 2018	$	6,359	$	27,013	$	38,647		$	(1,277	)	$	70,742
Stock options exercised		14		88		-			-			102
Stock option expense		-		24		-			-			24
Unrestricted stock grants		27		397		-			-			424
Cash dividends declared ($0.30 per share)		-		-		(767	)		-			(767	)
Net income		-		-		1,246			-			1,246
Other comprehensive income		-		-		-			754			754
Balance, March 31, 2019	$	6,400	$	27,522	$	39,126		$	(523	)	$	72,525
Stock option expense		-		23		-			-			23
Stock dividend distributable *		320		4,593		(4,913	)		-			-
Cash dividends declared ($0.30 per share)		-		-		(806	)		-			(806	)
Net income		-		-		2,115			-			2,115
Other comprehensive income		-		-		-			486			486
Balance, June 30, 2019	$	6,720	$	32,138	$	35,522		$	(37	)	$	74,343

Balance, December 31, 2019	$	6,720	$	32,195	$	37,235		$	(43	)	$	76,107
Stock option expense		-		24		-			-			24
Restricted stock grant expense		-		15		-			-			15
Cash dividends declared ($0.30 per share)		-		-		(811	)		-			(811	)
Net income		-		-		1,404			-			1,404
Other comprehensive loss		-		-		-			(448	)		(448	)
Balance, March 31, 2020	$	6,720	$	32,234	$	37,828		$	(491	)	$	76,291
Stock option expense		-		34		-			-			34
Restricted stock grant expense		-		39		-			-			39
Cash dividends declared ($0.30 per share)		-		-		(814	)		-			(814	)
Net income		-		-		2,088			-			2,088
Other comprehensive income		-		-		-			1,454			1,454
Balance, June 30, 2020	$	6,720	$	32,307	$	39,102		$	963		$	79,092

* Common stock and capital surplus as of June 30, 2019 includes the 5% stock dividend distributable effective July 5, 2019.

See Notes to Consolidated Financial Statements

VIRGINIA NATIONAL BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

      For the nine months ended
September 30, 2017       September 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $                  5,400 $                  4,261
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) loan losses 213 (291 )
Net amortization and accretion of securities 327 335
Net losses (gains) on sales and calls of securities 74 (189 )
Net losses on sales of assets - 21
Earnings on bank owned life insurance (312 ) (331 )
Amortization of intangible assets 87 68
Depreciation and other amortization 858 879
Stock option/stock grant expense 8 20
Decrease in accrued interest receivable and other assets 18 302
Decrease in accrued interest payable and other liabilities (205 ) (540 )
Net cash provided by operating activities 6,468 4,535

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities (45,290 ) (18,982 )
Net increase in restricted investments (1,000 ) (28 )
Proceeds from maturities, calls and principal payments of available for sale securities 7,212 21,473
Proceeds from sales of available for sale securities 24,022 2,672
Net increase in organic loans (9,109 ) (14,545 )
Net (increase) decrease in purchased loans (9,857 ) 7,322
Cash payment for wealth management book of business (300 ) (700 )
Purchase of bank premises and equipment (249 ) (477 )
Net cash used in investing activities (34,571 ) (3,265 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts, and money market accounts (16,404 ) 4,925
Net (decrease) increase in certificates of deposit and other time deposits (977 ) 3,787
Net decrease in repurchase agreements (7,699 ) (9,616 )
Net increase in short term borrowings 25,000 -
Common stock repurchased - (1,260 )
Proceeds from stock options exercised 981 179
Cash dividends paid (1,000 ) (784 )
Net cash used in financing activities (99 ) (2,769 )

NET DECREASE IN CASH AND CASH EQUIVALENTS $ (28,202 ) $ (1,499 )

CASH AND CASH EQUIVALENTS:
Beginning of period $ 38,500 $ 43,527
End of period $ 10,298 $ 42,028

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 899 $ 708
Taxes $ 2,900 $ 2,029

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain on available for sale securities $ 732 $ 955

	For the six months ended
	June 30, 2020			June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,492		$	3,361
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,143			620
Net amortization and accretion of securities		210			133
Net gains on sale of securities		(643	)		(64	)
Earnings on bank owned life insurance		(216	)		(576	)
Amortization of intangible assets		57			51
Depreciation and other amortization		915			881
Stock option expense		58			47
Stock grants, unrestricted		-			424
Stock grant expense, restricted		54			-
Net change in:
Accrued interest receivable and other assets		(430	)		(397	)
Accrued interest payable and other liabilities		292			64
Net cash provided by operating activities		4,932			4,544

CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in restricted investments		(53	)		(1	)
Purchases of available for sale securities		(62,259	)		(6,946	)
Proceeds from maturities, calls and principal payments of available for sale securities		29,161			2,547
Proceeds from sales of available for sale securities		46,075			10,443
Net decrease (increase) in organic loans		(103,984	)		14,168
Net decrease in purchased loans		10,688			565
Cash payment for wealth management book of business		(50	)		(50	)
Proceeds from settlement of bank owned life insurance		-			1,176
Purchase of bank premises and equipment		(80	)		(84	)
Net cash provided by (used in) investing activities		(80,502	)		21,818

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW accounts, and money market accounts		105,669			(32,476	)
Net increase (decrease) in certificates of deposit and other time deposits		(12,679	)		13,462
Proceeds from stock options exercised		-			102
Cash dividends paid		(1,618	)		(1,530	)
Net cash provided by (used in) financing activities		91,372			(20,442	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	15,802		$	5,920

CASH AND CASH EQUIVALENTS:
Beginning of period	$	19,085		$	18,874
End of period	$	34,887		$	24,794

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest	$	2,032		$	1,904
Taxes	$	375		$	1,150

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain on available for sale securities	$	1,274		$	1,569
Initial right-of-use assets obtained in exchange for new operating lease liabilities	$	—		$	4,279

See Notes to Consolidated Financial Statements

VIRGINIA NATIONAL BANKSHARES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~September~~June 30, ~~2017~~2020

Note 1. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Virginia National Bankshares Corporation (the “Company”), and its ~~subsidiary~~subsidiaries Virginia National Bank (the “Bank”) and Masonry Capital Management, LLC (“Masonry Capital”), ~~and the Bank’s subsidiary,~~a registered investment advisor. Effective July 1, 2018, VNBTrust, National Association ~~which offers~~(“VNBTrust”), formerly a subsidiary of the Bank, was merged into Virginia National Bank, and the Bank continued to offer investment management, wealth advisory and trust and estate administration services under the name of VNB Wealth Management, ~~(“VNBTrust”~~also referred to herein as “VNB Wealth.” All references herein to VNB Wealth Management or ~~“VNB Wealth”).~~VNB Wealth refer to VNBTrust for periods prior to July 1, 2018. In 2019, the services offered by 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.

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. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included.

The 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, and deferred tax assets.~~measurements. Operating results for the ~~three-month~~three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2020.

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, ~~2016.~~ 2019. If needed, certain previously reported amounts have been reclassified to conform to current period presentation. No such reclassifications were significant.

Adoption of New Accounting ~~Standard~~Guidance

Interagency COVID-19 Guidance In March 2020, various regulatory agencies, including the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards ~~Update (ASU) 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements~~Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to ~~Employer Share-Based Payment Accounting,” became effective~~the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the ~~quarter ended March 31, 2017. This ASU simplifies several aspects~~staff of the ~~accounting for share-based~~FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment ~~award transactions, one~~deferrals, fee waivers, extensions of ~~which~~repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is the recognition of excess tax benefits and deficiencies related to share-based payments. Prior to the adoption of ASU 2016-09, such tax consequences were recognized as components of additional paid-in capital. With the adoption of this ASU, tax benefits and deficiencies are recognized within income tax expense. In accordance with the adoption provisions of ASU 2016-09, the Company has prospectively applied the requirement to present excess tax benefits as an operating activity on the statement of cash flows. Further, the Company continues to estimate the number of award forfeitures in recording costs for share-based awards. The adoption did notimplemented. This interagency guidance may have a material impact on ~~our~~the Company’s financial ~~statements for the nine months ended September 30, 2017.~~statements; however, this impact cannot be quantified at this time.

Recent Accounting Pronouncements

~~In January 2016, the FASB issued ASU 2016-01, “Financial~~Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 3) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); and 4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact that ASU 2016-01 will have on its consolidated financial statements.

Credit Losses In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, “Revenue from Contracts with Customers.” The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is in the early stages of assessing the impact that ASU 2016-02 will have on its consolidated financial statements, including evaluating leases and contracts which are covered and calculating the impact on its assets and liabilities. The Company does not expect the amendment to have a material impact on its net income but does anticipate an increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding liability for all lease obligations that are currently classified as operating leases, primarily real estate leases for office space, as well as additional disclosure on all our lease obligations.

~~During~~ June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. 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. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ~~amendments~~FASB has issued multiple updates to ASU 2016-13 as codified in ~~this ASU~~Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (SEC) and all other entities who do not file with the SEC are ~~effective for SEC filers~~required to apply the guidance for fiscal years, and interim periods within those ~~fiscal~~ years, beginning after December 15, ~~2019.~~ 2022. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements. 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. The steering committee ~~has begun~~meets regularly to address the compliance requirements, data requirements and sources, and analysis efforts ~~which will be~~that are required to adopt these new requirements. In addition to attending seminars and webinars on this topic with regulators and other experts, the committee is working closely with the Company’s vendor to gather additional loan data which is anticipated to be needed for this ~~calculation.~~calculation and is attending training sessions on the software to be utilized to calculate the expected credit losses. 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. Upon adoption, the impact to the allowance for credit losses (currently allowance for loan losses) will have an offsetting one-time cumulative-effect adjustment to retained earnings.

~~During August 2016,~~Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.

Income Taxes In December 2019, the FASB issued ASU ~~No. 2016-15, “Statement~~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 ~~Cash Flows (Topic 230): Classification~~certain income tax-related guidance. This ASU is part of ~~Certain Cash Receipts~~the FASB’s simplification initiative to make narrow-scope simplifications and ~~Cash Payments,”~~improvements to ~~address diversity in how certain cash receipts and cash payments are presented and classified in the statement~~accounting standards through a series of ~~cash flows. The amendments are effective for~~short-term projects. For public business entities, for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. If retrospective application is impractical for some of the issues addressed by the update, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.

During January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business – inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.

During January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

During March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, ~~2018,~~2020, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017-08 will have on its consolidated financial statements.

During May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments are effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The Company is currently assessing the impact that ASU 2017-09 will have on its consolidated financial statements.

During August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period.permitted. The Company does not expect the adoption of ASU ~~2017-12~~2019-12 to have a material impact on its consolidated financial statements.

Investments – Equity Securities In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the FASB’s Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its consolidated financial statements.

LIBOR and Other Reference Rates In March 2020, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. To facilitate an orderly transition from LIBOR, Inter-bank Offered Rate (“IBOR”) and other benchmark rates to alternative reference rates (“ARRs”), the Company has established a focus committee, which includes members of senior management, including the Chief Credit Officer and Chief Financial Officer, among others. The task of this committee is to identify, assess and monitor risk associated with the expected discontinuation or unavailability of benchmarks, including LIBOR, achieve operations readiness and engage impacted clients in connection with the transition to ARRs. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

SEC Filing Requirements On March 12, 2020, the SEC finalized amendments to the definitions of its “accelerated filer” and “large accelerated filer” definitions. The amendments increase the threshold criteria for meeting these filer classifications and are effective on April 27, 2020. Any changes in filer status are to be applied beginning with the filer’s first annual report filed with the SEC subsequent to the effective date. Prior to these changes, the Company was required to comply with section 404(b) of the Sarbanes Oxley Act concerning auditor attestation over internal control over financial reporting as an “accelerated filer” as it had more than $75 million in public float but less than $700 million at the end of the Company’s most recent second quarter. The rule change expands the definition of “smaller reporting companies” to include entities with public float of less than $700 million and less than $100 million in annual revenues. The Company expects to meet this expanded category of smaller reporting company and will no longer be considered an accelerated filer. If the Company’s annual revenues exceed $100 million, its category will change back to “accelerated filer”. The classifications of “accelerated filer” and “large accelerated filer” require a public company to obtain an auditor attestation concerning the effectiveness of internal control over financial reporting (ICFR) and include the opinion on ICFR in its annual report on Form 10-K. Smaller reporting companies also have additional time to file quarterly and annual financial statements. All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of internal control over financial reporting, but the external auditor attestation of internal control over financial reporting is not required for smaller reporting companies. As the Bank’s total assets exceed $500 million, it remains subject to FDICIA’s internal reporting requirements, but does not require an auditor attestation concerning internal controls over financial reporting. As such, professional and consulting expenditures should decline by an immaterial amount.

Note 2. Securities

The amortized cost and fair values of securities available for sale as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows (dollars in thousands):

September 30, 2017 Amortized Gross Unrealized Gross Unrealized Fair
Cost Gains (Losses) Value
U.S. Government agencies $ 19,500 $ - $ (334 ) $ 19,166
Mortgage-backed securities/CMOs 31,819 2 (197 ) 31,624
Municipal bonds 20,178 125 (44 ) 20,259
$ 71,497 $ 127 $ (575 ) $ 71,049

December 31, 2016 Amortized Gross Unrealized Gross Unrealized Fair
Cost Gains (Losses) Value
U.S. Government agencies $ 14,998 $ - $ (497 ) $ 14,501
Corporate bonds 2,017 - (7 ) 2,010
Mortgage-backed securities/CMOs 25,470 27 (515 ) 24,982
Municipal bonds 15,357 30 (218 ) 15,169
$ 57,842 $ 57 $ (1,237 ) $ 56,662

June 30, 2020	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. Government agencies	$	9,003	$	40	$	(6	)	$	9,037
Mortgage-backed securities/CMOs		57,842		762		(202	)		58,402
Municipal bonds		34,707		773		(147	)		35,333
Total Securities Available for Sale	$	101,552	$	1,575	$	(355	)	$	102,772

December 31, 2019	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. Government agencies	$	15,000	$	-	$	(48	)	$	14,952
Corporate bonds		7,469		-		-			7,469
Mortgage-backed securities/CMOs		71,970		76		(314	)		71,732
Municipal bonds		19,656		282		(50	)		19,888
Total Securities Available for Sale	$	114,095	$	358	$	(412	)	$	114,041

As of ~~September~~June 30, ~~2017,~~2020, there were ~~$55.1~~$42.2 million, or 4529 issues of individual securities, held in aan unrealized loss position. These securities have an unrealized loss of ~~$575~~$355 thousand and consisted of 2312 mortgage-backed/CMOs, ~~7 agency~~15 municipal bonds, and ~~15 municipal~~2 agency bonds.

The following table summarizes all securities with unrealized losses, segregated by length of time in a continuous unrealized loss position, at ~~September~~June 30, ~~2017~~2020, and December 31, ~~2016~~2019 (dollars in thousands):

September 30, 2017
Less than 12 Months 12 Months or more Total
Unrealized Unrealized Unrealized
      Fair Value       Losses       Fair Value       Losses       Fair Value       Losses
U.S. Government agencies $       9,931 $        (69 ) $ 9,235 $          (265 ) $       19,166 $       (334 )
Mortgage-backed/CMOs 23,918 (147 ) 2,145 (50 ) 26,063 (197 )
Municipal bonds 9,279 (37 ) 612 (7 ) 9,891 (44 )
$ 43,128 $ (253 ) $ 11,992 $ (322 ) $ 55,120 $ (575 )

December 31, 2016
Less than 12 Months 12 Months or more Total
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
U.S. Government agencies $       14,501 $ (497 ) $ - $ - $ 14,501 $ (497 )
Corporate bonds 2,010 (7 ) - - 2,010 (7 )
Mortgage-backed/CMOs 18,980 (441 ) 2,629 (74 ) 21,609 (515 )
Municipal bonds 10,382 (218 ) - - 10,382 (218 )
$ 45,873 $ (1,163 ) $ 2,629 $ (74 ) $ 48,502 $ (1,237 )

June 30, 2020
	Less than 12 Months					12 Months or more				Total
			Unrealized					Unrealized				Unrealized
	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
U.S. Government agencies	$	2,994	$	(6	)	$	—	$	—	$	2,994	$	(6	)
Mortgage-backed/CMOs		25,205		(202	)		—		—		25,205		(202	)
Municipal bonds		13,958		(147	)		—		—		13,958		(147	)
	$	42,157	$	(355	)	$	—	$	—	$	42,157	$	(355	)

December 31, 2019
	Less than 12 Months					12 Months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agencies	$	9,957	$	(43	)	$	1,995	$	(5	)	$	11,952	$	(48	)
Mortgage-backed/CMOs		39,061		(228	)		7,716		(86	)		46,777		(314	)
Municipal bonds		5,922		(50	)		—		—			5,922		(50	)
	$	54,940	$	(321	)	$	9,711	$	(91	)	$	64,651	$	(412	)

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 ~~largely due~~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. 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 ~~September~~June 30, ~~2017,~~2020, 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: it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, or the Company does not expect to recover the security’s entire amortized cost basis (even if the Company does not intend to sell). 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 ~~September~~June 30, ~~2017,~~2020, 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 ~~$27.4~~$4.0 million at ~~September~~June 30, ~~2017~~2020 were pledged as collateral to secure public deposits and ~~repurchase agreements.~~facilitate borrowing from the Federal Reserve Bank of Richmond (“FRB”). At December 31, ~~2016,~~2019, securities having carrying values of ~~$34.2~~$5.0 million were similarly pledged.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, proceeds from the sales of securities amounted to ~~$24.0~~$46.1 million, with gross realized gains of $655 thousand and gross realized losses ~~on these securities~~ of ~~$74~~$12 thousand, for a net realized gain of $643 thousand. For the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, proceeds from the sales of securities amounted to ~~$2.7~~$10.4 million, with gross realized gains of $93 thousand and gross realized ~~gains on these securities were $44~~losses of $29 thousand, ~~and an additional $10.7 million in calls~~for a net realized gain of ~~securities accounted for the additional $145 thousand in realized gains.~~$64 thousand.

Restricted securities are securities with limited marketability and consist of stock in the ~~Federal Reserve Bank of Richmond (“FRB”),~~FRB, the Federal Home Loan Bank of Atlanta (“FHLB”), and CBB Financial Corporation (“CBBFC”), the holding company for Community Bankers Bank. These restricted securities, totaling ~~$2.7 million as of September 30, 2017 and~~ $1.7 million as of both June 30, 2020 and December 31, ~~2016,~~2019 are carried at cost.

Note 3. Loans

The composition of the loan portfolio by loan classification at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 appears below (dollars in thousands).

	September 30,			December 31,			June 30,			December 31,
	2017			2016			2020			2019
Commercial
Commercial and industrial - organic	$	42,230		$	41,560		$	37,459		$	38,843
Commercial and industrial - Paycheck Protection Program								84,244			—
Commercial and industrial - government guaranteed		22,722			5,550			33,959			35,347
Commercial and industrial - syndicated		17,262			19,107			6,374			6,398
Total commercial and industrial		82,214			66,217			162,036			80,588
Real estate construction and land
Residential construction		2,310			395			3,208			2,197
Commercial construction		12,788			4,422			16,010			6,880
Land and land development		10,049			10,865			7,282			8,063
Total construction and land		25,147			15,682			26,500			17,140
Real estate mortgages
1-4 family residential, first lien, investment		39,251			37,538			55,180			44,099
1-4 family residential, first lien, owner occupied		16,809			16,629			16,766			20,671
1-4 family residential, junior lien		3,393			2,871			2,254			2,520
1-4 family residential - purchased								27,050			33,428
Home equity lines of credit, first lien		8,968			7,912			9,862			10,268
Home equity lines of credit, junior lien		13,498			14,022			9,990			9,671
Farm		10,551			11,253			7,949			8,808
Multifamily		31,948			31,052			32,330			27,093
Commercial owner occupied		77,823			83,296			97,267			96,117
Commercial non-owner occupied		107,828			107,062			121,823			118,561
Total real estate mortgage		310,069			311,635			380,471			371,236
Consumer
Consumer revolving credit		22,459			20,373			18,435			20,081
Consumer all other credit		9,705			11,328			4,209			5,741
Student loans purchased		51,430			56,900			40,743			44,747
Total consumer		83,594			88,601			63,387			70,569
Total loans		501,024			482,135			632,394			539,533
Less: Allowance for loan losses		(3,824	)		(3,688	)		(4,917	)		(4,209	)
Net loans	$	497,200		$	478,447		$	627,477		$	535,324

During the second quarter of 2020, the Bank originated $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.

The balances in the table above include unamortized premiums and net deferred loan costs ~~and fees.~~(fees). As of ~~September~~June 30, ~~2017,~~2020 and December 31, 2019, unamortized premiums on loans purchased were ~~$2.1~~$2.2 million ~~with $700 thousand in unamortized premiums recorded as of December 31, 2016.~~and $2.5 million, respectively. Net deferred loan costs (fees) totaled ~~$236 thousand~~$(2.5) million and ~~$344~~$100 thousand as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016, respectively.~~2019. The deferred fees increased $2.6 million due to the fees collected from the SBA for the PPP loans which are being amortized over the contractual life of the underlying loans, most of which are over a 24-month period.

Accounting guidance requires certain disclosures about investments in impaired loans, the allowance for loan losses and interest income recognized on impaired loans. A loan is considered impaired when it is probable that the Company will be unable to collect all principal and interest amounts when due according to the contractual terms of the loan agreement. Factors involved in determining impairment include, but are not limited to, expected future cash flows, financial condition of the borrower, and current economic conditions.

Following is a breakdown by class of the loans classified as impaired loans as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019. 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 or the twelve months ended December 31, ~~2016.~~2019. Interest income recognized is for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 or the twelve months ended December 31, ~~2016. (Dollars~~2019.(Dollars below reported in thousands.)

September 30, 2017 Unpaid Average Interest
Recorded Principal Associated Recorded Income
Investment Balance Allowance Investment Recognized
Impaired loans without a valuation allowance:
Land and land development $ 43 $ 96 $ - $ 47 $ -
1-4 family residential mortgages, first lien, owner occupied 103 139 - 109 -
1-4 family residential mortgages, junior lien 384 386 362 12
Commercial non-owner occupied real estate 983 983 - 997 35
Student loans purchased 937 937 - 918 47
Impaired loans with a valuation allowance - - - - -
Total impaired loans $ 2,450 $ 2,541 $ - $ 2,433 $ 94

December 31, 2016 Unpaid Average Interest
Recorded Principal Associated Recorded Income
Investment Balance Allowance Investment Recognized
Impaired loans without a valuation allowance:
Land and land development $ 51 $ 100 $ - $ 55 $ -
1-4 family residential mortgages, first lien, owner occupied 116 147 - 123 -
1-4 family residential mortgages, junior lien 354 354 360 16
Commercial non-owner occupied real estate 1,012 1,012 - 1,036 45
Student loans purchased 889 889 - 498 55
Impaired loans with a valuation allowance - - - - -
Total impaired loans $ 2,422 $ 2,502 $ - $ 2,072 $ 116

June 30, 2020	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Land and land development	$	11	$	57	$	-	$	185	$	-
1-4 family residential mortgages, junior lien		113		113		-		115		3
Commercial non-owner occupied real estate		854		854		-		865		23
Total impaired loans without a valuation allowance		978		1,024		-		1,165		26

Impaired loans with a valuation allowance
Student loans purchased		1,090		1,090		7		1,110		37
Total impaired loans with a valuation allowance		1,090		1,090		7		1,110		37
Total impaired loans	$	2,068	$	2,114	$	7	$	2,275	$	63

December 31, 2019	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Land and land development	$	279	$	324	$	-	$	67	$	13
1-4 family residential mortgages, first lien, owner occupied		-		-		-		20		2
1-4 family residential mortgages, junior lien		117		117		-		122		6
Commercial and industrial - organic		20		20		-		3		1
Commercial non-owner occupied real estate		879		879		-		900		48
Total impaired loans without a valuation allowance		1,295		1,340		-		1,112		70

Impaired loans with a valuation allowance
Student loans purchased		1,184		1,184		21		1,549		86
Total impaired loans with a valuation allowance		1,184		1,184		21		1,549		86
Total impaired loans	$	2,479	$	2,524	$	21	$	2,661	$	156

Included in the impaired loans above are non-accrual loans. Generally, loans are placed on non-accrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other non-accrual loans is recognized only to the extent of interest payments received. The recorded investment in non-accrual loans is shown below by class (dollars in thousands):

September 30, 2017 December 31, 2016
Land and land development $ 44 $ 51
1-4 family residential mortgage, first lien, owner occupied 103 116
1-4 family residential mortgage, junior lien 39 -
Total nonaccrual loans $ 186 $ 167

	June 30, 2020		December 31, 2019
Land and land development	$	11	$	279
Commercial and industrial - organic		-		20
Total non-accrual loans	$	11	$	299

Additionally, Troubled Debt Restructurings (“TDRs”) are considered impaired loans. TDRs occur when the Company agrees to modify the original terms of a loan by granting a concession that it would not otherwise consider due to the deterioration in the financial condition of the borrower. These concessions are done in an attempt to improve the paying capacity of the borrower, and in some cases to avoid foreclosure, and are made with the intent to restore the loan to a

performing status once sufficient payment history can be demonstrated. These concessions could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.

In accordance with regulatory guidance, the Bank has approved for certain customers who have been adversely affected by COVID-19 to defer principal-only, or principal and interest, payments for a 90- to 180-day period. Such short-term modifications, which were made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. While interest will continue to accrue to income, in accordance with GAAP, if the Bank ultimately incurs a credit loss on these deferred payments, interest income would need to be reversed and therefore, interest income in future periods could be negatively impacted. A total of $56.8 million in loan deferments have been approved in total since the beginning of the pandemic, and as of June 30, 2020, $17.0 million, or 29.9%, of the total loan deferments approved have returned to normal payment schedules and are now current.

Based on regulatory guidance on Student Lending, ~~issued in May, 2016,~~ the Company has classified 6172 of its student loans purchased as TDRs for a total of ~~$937 thousand~~$1.1 million as of ~~September~~June 30, ~~2017.~~2020. 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 restructurings. Student loan borrowers are allowed in-school deferments, plus an automatic six-month grace period post in-school status, before repayment is scheduled to begin, and these deferments do not count toward the maximum allowable forbearance. AsInitially, all student loans ~~purchased are~~were fully insured by a surety bond, and the Company ~~does~~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; interest continues to accrue on these TDRs during any deferment and forbearance periods.

The following provides a summary, by class, of TDRs that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and TDRs that have been placed in non-accrual status, which are considered to be nonperforming (dollars in thousands).

Troubled debt restructurings (TDRs) September 30, 2017 December 31, 2016
No. of Recorded No. of Recorded
Loans Investment Loans Investment
Performing TDRs
1-4 family residential mortgages, junior lien 2 $ 345 2 $ 354
Commercial non-owner occupied real estate 1 983 1 1,012
Student loans purchased 61 937 50 889
Total performing TDRs 64 $ 2,265 53 $ 2,255

Nonperforming TDRs
Land and land development 1 $ 25 1 $ 29
Total TDRs 65 $ 2,290 54 $ 2,284

Troubled debt restructurings (TDRs)	June 30, 2020				December 31, 2019
	No. of		Recorded		No. of		Recorded
	Loans		Investment		Loans		Investment
Performing TDRs
1-4 family residential mortgages, junior lien		1	$	113		1	$	117
Commercial non-owner occupied real estate		1		854		1		879
Student loans purchased		72		1,090		67		1,184
Total performing TDRs		74	$	2,057		69	$	2,180

Nonperforming TDRs
Land and land development		1	$	11		1	$	13
Total nonperforming TDRs		1	$	11		1	$	13
Total TDRs		75	$	2,068		70	$	2,193

A summary of loans shown above that were modified under the terms of a TDR during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 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 For three months ended
September 30, 2017 September 30, 2016
Pre- Post- Pre- Post-
Modification Modification Modification Modification
Number Recorded Recorded Number Recorded Recorded
of Loans Balance Balance of Loans Balance Balance
Student loans purchased 7 $ 42 $ 42 12 $ 134 $ 134
Total loans modified during the period 7 $ 42 $ 42 12 $ 134 $ 134

For nine months ended For nine months ended
September 30, 2017 September 30, 2016
Pre- Post- Pre- Post-
Modification Modification Modification Modification
Number Recorded Recorded Number Recorded Recorded
of Loans Balance Balance of Loans Balance Balance
Student loans purchased 16 $ 133 $ 133 50 $ 847 $ 868
Total loans modified during the period 16 $ 133 $ 133 50 $ 847 $ 868

~~There~~

	For three months ended						For three months ended
	June 30, 2020						June 30, 2019
	Number of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance		Number of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance
Student loans purchased		6	$	49	$	49		10	$	78	$	78
Total loans modified during the period		6	$	49	$	49		10	$	78	$	78

	For the six months ended						For the six months ended
	June 30, 2020						June 30, 2019
	Number of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance		Number of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance
Student loans purchased		11	$	109	$	109		12	$	133	$	133
Total loans modified during the period		11	$	109	$	109		12	$	133	$	133

During the six months ended June 30, 2020, there were no2 loans modified as TDRs that subsequently defaulted ~~during the nine months ended September 30, 2017 or the twelve months ended December 31, 2016 that were~~which had been modified as TDRs during the twelve months prior to default. These student loans had a balance of $7 thousand prior to being charged off. There were 3 loans modified as a TDR that subsequently defaulted during the year ended December 31, 2019 which had been modified as a TDR during the twelve months prior to default. These student loan had balances totaling $23 thousand prior to being charged off.

There were no0 loans secured by 1-4 family residential property that were in the process of foreclosure at either ~~September~~June 30, ~~2017~~2020 or December 31, ~~2016.~~2019.

Note 4. Allowance for Loan Losses

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb probable credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s quarterly evaluation of the collectability of the loan portfolio, credit concentrations, historical loss experience, specific impaired loans, and economic conditions. To determine the total allowance for loan losses, the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and loans analyzed on a pooled basis. 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. 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 (“PPP”)
	Commercial and industrial - government guaranteed¹
	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
	Farm
	Multifamily
	Commercial owner occupied
	Commercial non-owner occupied

Consumer loan segment:
	Consumer revolving credit
	Consumer all other credit
	Student loans purchased

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.

¹Commercial and industrial – government guaranteed class excludes Paycheck Protection Program loans

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

●

•

Student loans purchased ~~are fully insured for loss by~~- On June 27, 2018, the Company was notified that ReliaMax Surety Company (“ReliaMax Surety”), the South Dakota insurance company which issued surety bonds ~~that~~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 ~~purchased at the same timethat each package of~~did not charge off student loans ~~was acquired, and~~as the insurance covered the past due loans, but the Company ~~has not experienced any losses in this class todate. In addition~~did apply qualitative factors to calculate a reserve on these loans, net of the ~~insurance, the Company holds~~ deposit reserve accounts ~~to offset any losses resulting fromthe breach of any representations or warranties~~held by the ~~sellers. Qualitative factors are applied, and the calculatedreserve is net~~Company for this group of ~~any deposit reserve accounts.~~loans.


●	Prior to the quarter ended September 30, 2016, there was not an established loss history in the commercial andindustrial syndicated loans. The S&P credit and recovery ratings on the credit facilities were utilized to calculate athree-year weighted average historical default rate. During the third quarter of 2016, there was a small loss in thecommercial and industrial syndicated loans; therefore, the Company utilized a combination of the migration analysisloss method and the S&P credit and recovery ratings.

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

•

Commercial and industrial government guaranteed loans - These purchased loans require no reserve as these are 100% guaranteed by either the Small Business Administration (“SBA”) or the United States Department of Agriculture (“USDA”).

•

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.

~~Furthermore, a nominal loss reserve is applied to loans rated “Good” in an abundance of caution.~~

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. Qualitative factors are combined with these quantitative factors to arrive at the overall general allowances.

The Company’s internal creditworthiness grading system is based on experiences with similarly graded loans. The Company performs regular credit reviews of the loan portfolio to review the credit quality and adherence to its underwriting standards. Additionally, external reviews of a portion of the credits are conducted on a semi-annual basis.

Loans that trend upward on the risk ratings scale, toward more positive risk ratings, generally exhibit lower risk factor characteristics. Conversely, loans that migrate toward more negative ratings generally will result in a higher risk factor being applied to those related loan balances.

Risk Ratings and Historical Loss Factor Assigned

Excellent

A 0% historical loss factor is applied, as these loans are secured by cash or fully guaranteed by a U.S. government agency and represent a minimal risk. The Company has never experienced a loss within this category.

Good

A 0% historical loss factor is applied, as these loans represent a low risk and are secured by marketable collateral within margin. In an abundance of caution, a nominal loss reserve is applied to these loans. The Company has never experienced a loss within this category.

Pass

~~Historical~~A historical loss factor for loans rated “Pass” is applied to current balances of like-rated loans, pooled by class. Loans with the following risk ratings are pooled by class and considered together as “Pass”:

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. A historical loss factor for loans rated “Watch” is applied to current balances of like-rated loans pooled by class.

Special Mention

These potential problem loans are currently protected but are potentially weak. A historical loss factor for loans rated “Special Mention” is applied to current balances of like-rated loans pooled by class.

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. Otherwise, a historical loss factor for loans rated “Substandard” is applied to current balances of all other “Substandard” loans pooled by class.

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.

The following represents the loan portfolio designated by the internal risk ratings assigned to each credit as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands). There were no loans rated “Doubtful” as of either period.

									Special		Sub-
September 30, 2017	Excellent		Good		Pass		Watch		Mention		standard		TOTAL
June 30, 2020															Excellent		Good		Pass		Watch		Special Mention		Sub- standard		TOTAL
Commercial
Commercial and industrial - organic	$	3,292	$	19,482	$	18,349	$	120	$	279	$	708	$	42,230	$	5,980	$	16,733	$	14,182	$	224	$	—	$	340	$	37,459
Commercial and industrial - Paycheck Protection Program																84,244		-		-		-		-		-		84,244
Commercial and industrial - government guaranteed		22,722		-		-		-		-		-		22,722		33,959		-		-		-		-		-		33,959
Commercial and industrial - syndicated		-		-		14,682		-		-		2,580		17,262		-		-		6,374		-		-		-		6,374
Real estate construction
Residential construction		-		-		2,310		-		-		-		2,310		-		-		3,208		-		-		-		3,208
Commercial construction		-		-		12,788		-		-		-		12,788		-		-		16,010		-		-		-		16,010
Land and land development		-		-		9,493		3		-		553		10,049		-		-		7,059		200		-		23		7,282
Real estate mortgages
1-4 family residential, first lien, investment		-		-		36,696		1,889		226		440		39,251
1-4 family residential, first lien investment																-		-		52,114		2,702		-		364		55,180
1-4 family residential, first lien, owner occupied		-		-		15,946		132		-		731		16,809		-		-		14,979		1,022		-		765		16,766
1-4 family residential, junior lien		-		-		2,753		269		196		175		3,393		-		-		1,805		31		15		403		2,254
1-4 family residential, first lien - purchased																-		-		27,050		-		-		-		27,050
Home equity lines of credit, first lien		-		-		8,928		40		-		-		8,968		-		-		9,862		-		-		-		9,862
Home equity lines of credit, junior lien		-		-		13,387		-		-		111		13,498		-		-		9,824		84		-		82		9,990
Farm		-		-		9,162		-		-		1,389		10,551		-		-		6,366		307		-		1,276		7,949
Multifamily		-		-		31,948		-		-		-		31,948		-		-		31,934		396		-		-		32,330
Commercial owner occupied		-		676		76,685		462		-		-		77,823		-		-		86,895		5,533		-		4,839		97,267
Commercial non-owner occupied		-		-		104,826		983		-		2,019		107,828		-		-		119,431		1,510		-		882		121,823
Consumer
Consumer revolving credit		9		21,750		699		1		-		-		22,459		839		17,433		160		-		-		3		18,435
Consumer all other credit		321		7,625		1,723		2		-		34		9,705		400		3,340		468		-		-		1		4,209
Student loans purchased		-		-		50,493		937		-		-		51,430		-		-		39,374		1,213		64		92		40,743
Total Loans	$	26,344	$	49,533	$	410,868	$	4,838	$	701	$	8,740	$	501,024	$	125,422	$	37,506	$	447,095	$	13,222	$	79	$	9,070	$	632,394

									Special		Sub-
December 31, 2016	Excellent		Good		Pass		Watch		Mention		standard		TOTAL
Commercial
Commercial and industrial - organic	$	816	$	24,225	$	15,840	$	259	$	236	$	184	$	41,560
Commercial and industrial - government guaranteed		5,550		-		-		-		-		-		5,550
Commercial and industrial - syndicated		-		-		16,175		-		-		2,932		19,107
Real estate construction
Residential construction		-		-		395		-		-		-		395
Commercial construction		-		-		4,422		-		-		-		4,422
Land and land development		-		-		10,271		5		-		589		10,865
Real estate mortgages
1-4 family residential, first lien, investment		-		-		35,102		1,724		229		483		37,538
1-4 family residential, first lien, owner occupied		-		-		15,207		325		-		1,097		16,629
1-4 family residential, junior lien		-		-		2,214		326		189		142		2,871
Home equity lines of credit, first lien		-		-		7,872		40		-		-		7,912
Home equity lines of credit, junior lien		-		-		13,911		-		-		111		14,022
Farm		-		-		11,253		-		-		-		11,253
Multifamily		-		-		31,052		-		-		-		31,052
Commercial owner occupied		-		695		81,582		1,019		-		-		83,296
Commercial non-owner occupied		-		-		104,963		1,012		-		1,087		107,062
Consumer
Consumer revolving credit		65		19,766		539		-		-		3		20,373
Consumer all other credit		284		9,977		1,027		4		-		36		11,328
Student loans purchased		-		-		56,011		889		-		-		56,900
Total Loans	$	6,715	$	54,663	$	407,836	$	5,603	$	654	$	6,664	$	482,135

December 31, 2019	Excellent		Good		Pass		Watch		Special Mention		Sub- standard		TOTAL
Commercial
Commercial and industrial - organic	$	6,463	$	16,453	$	14,257	$	1,493	$	37	$	140	$	38,843
Commercial and industrial - government guaranteed		35,347		-		-		-		-		-		35,347
Commercial and industrial - syndicated		-		-		6,398		-		-		-		6,398
Real estate construction
Residential construction		-		-		2,197		-		-		-		2,197
Commercial construction		-		-		6,880		-		-		-		6,880
Land and land development		-		-		7,563		207		-		293		8,063
Real estate mortgages
1-4 family residential, first lien, investment		-		-		39,641		4,076		-		382		44,099
1-4 family residential, first lien, owner occupied		-		-		19,578		1,040		-		53		20,671
1-4 family residential, junior lien		-		-		2,029		33		17		441		2,520
1-4 family residential, first lien - purchased		-		-		33,428		-		-		-		33,428
Home equity lines of credit, first lien		-		-		9,591		677		-		-		10,268
Home equity lines of credit, junior lien		-		-		9,357		232		-		82		9,671
Farm		-		-		6,149		318		-		2,341		8,808
Multifamily		-		-		26,690		403		-		-		27,093
Commercial owner occupied		-		-		86,884		5,928		1,677		1,628		96,117
Commercial non-owner occupied		-		-		116,092		1,558		-		911		118,561
Consumer										-
Consumer revolving credit		279		19,176		606		20		-		-		20,081
Consumer all other credit		199		5,035		507		-		-		-		5,741
Student loans purchased		-		-		42,598		1,729		211		209		44,747
Total Loans	$	42,288	$	40,664	$	430,445	$	17,714	$	1,942	$	6,480	$	539,533

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:

Changes in national and local economic conditions, including the condition of various market segments, which deteriorated in the first six months of 2020,

Changes in the value of underlying ~~collateral~~collateral;

Changes in volume of classified assets, measured as a percentage of ~~capital~~capital;

Changes in volume of delinquent ~~loans~~loans;

The existence and effect of any concentrations of credit and changes in the level of such ~~concentrations~~concentrations;

Changes in lending policies and procedures, including underwriting ~~standards~~standards;

Changes in the experience, ability and depth of lending management and ~~staff~~staff; and

Changes in the level of policy ~~exceptions~~exceptions.

It has been the Company’s experience that the first five factors drive losses to a much greater extent than the last three factors; therefore, the first five factors are weighted more heavily. Qualitative factors are not assessed against loans rated “Excellent” or ~~“Good.~~“Good,” as the Company has never experienced a loss within these categories.

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 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 ~~$2.5~~$2.1 million at ~~September~~June 30, ~~2017, there was no~~2020, specific valuation allowance ~~on any of these loans~~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 $7 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, 2020 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and the year ended December 31, ~~2016~~2019 appears below (dollars in thousands):

~~Allowance for Loan Losses Rollforward by Portfolio Segment~~
~~As of and for the period ended September 30, 2017~~

Allowance for Loan Losses Rollforward by Portfolio Segment																Allowance for Loan Losses Rollforward by Portfolio Segment
				Real Estate
	Commercial			Construction			Real Estate			Consumer
As of and for the period ended June 30, 2020																As of and for the period ended June 30, 2020
	Loans			and Land			Mortgages			Loans			Total				Commercial Loans			Real Estate Construction and Land		Real Estate Mortgages		Consumer Loans			Total
Allowance for Loan Losses:
Balance as of January 1, 2017	$	824		$	127		$	2,506		$	231		$	3,688
Balance as of beginning of year																	$	302		$	109	$	2,684	$	1,114		$	4,209
Charge-offs		(111	)		-			-			-			(111	)			-			-		-		(581	)		(581	)
Recoveries		21			-			2			11			34				19			-		-		127			146
Provision for (recovery of) loan losses		216			68			(30	)		(41	)		213				(59	)		96		691		415			1,143
Ending Balance	$	950		$	195		$	2,478		$	201		$	3,824			$	262		$	205	$	3,375	$	1,075		$	4,917

Ending Balance:
Individually evaluated for impairment	$	-		$	-		$	-		$	-		$	-			$	-		$	-	$	-	$	7		$	7
Collectively evaluated for impairment		950			195			2,478			201			3,824				262			205		3,375		1,068			4,910

Loans:
Individually evaluated for impairment	$	-		$	43		$	1,470		$	937		$	2,450			$	-		$	11	$	967	$	1,090		$	2,068
Collectively evaluated for impairment		82,214			25,104			308,599			82,657			498,574				162,036			26,489		379,504		62,297			630,326
Ending Balance	$	82,214		$	25,147		$	310,069		$	83,594		$	501,024			$	162,036		$	26,500	$	380,471	$	63,387		$	632,394

As of and for the year ended December 31, 2016

				Real Estate
	Commercial			Construction			Real Estate			Consumer
	Loans			and Land			Mortgages			Loans			Total
Allowance for Loan Losses:
Balance as of January 1, 2016	$	797		$	159		$	2,592		$	19		$	3,567
Charge-offs		(25	)		-			(12	)		-			(37	)
Recoveries		32			-			3			12			47
Provision for (recovery of) loan losses		20			(32	)		(77	)		200			111
Ending Balance	$	824		$	127		$	2,506		$	231		$	3,688

Ending Balance:
Individually evaluated for impairment	$	-		$	-		$	-		$	-		$	-
Collectively evaluated for impairment		824			127			2,506			231			3,688

Loans:
Individually evaluated for impairment	$	-		$	51		$	1,482		$	889		$	2,422
Collectively evaluated for impairment		66,217			15,631			310,153			87,712			479,713
Ending Balance	$	66,217		$	15,682		$	311,635		$	88,601		$	482,135

As of and for the period ended December 31, 2019
	Commercial Loans			Real Estate Construction and Land			Real Estate Mortgages		Consumer Loans			Total
Allowance for Loan Losses:
Balance as of beginning of year	$	811		$	119		$	2,611	$	1,350		$	4,891
Charge-offs		(482	)		-			-		(1,777	)		(2,259	)
Recoveries		51			1			14		136			202
Provision for (recovery of) loan losses		(78	)		(11	)		59		1,405			1,375
Ending Balance	$	302		$	109		$	2,684	$	1,114		$	4,209

Ending Balance:
Individually evaluated for impairment	$	-		$	-		$	-	$	21		$	21
Collectively evaluated for impairment		302			109			2,684		1,093			4,188
Loans:
Individually evaluated for impairment	$	20		$	279		$	996	$	1,184		$	2,479
Collectively evaluated for impairment		80,568			16,861			370,240		69,385			537,054
Ending Balance	$	80,588		$	17,140		$	371,236	$	70,569		$	539,533

As previously mentioned, one of the major factors that the Company uses in evaluating the adequacy of its allowance for loan losses is changes in the volume of delinquent loans. Management monitors payment activity on a regular basis. For all classes of loans, the Company considers the entire balance of the loan to be contractually delinquent if the minimum payment is not received by the due date. Interest and fees continue to accrue on past due loans until they are ~~changed to non-accrual status.~~placed in nonaccrual or charged off.

The following tables show the aging of past due loans as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016. Also included are loans that are 90 or more days past due but still accruing, because they are well secured and in the process of collection.~~2019. (Dollars below reported in thousands.)

Past Due Aging as of
September 30, 2017
30-59 60-89 90 Days or 90Days
Past Due
Days Past Days Past More Past Total Past Total and Still
Due Due Due Due Current Loans Accruing
Commercial loans
Commercial and industrial - organic $        - $          - $      - $      - $       42,230 $      42,230 $         -
Commercial and industrial - government guaranteed - - - - 22,722 22,722 -
Commercial and industrial - syndicated - - - - 17,262 17,262 -
Real estate construction and land
Residential construction - - - - 2,310 2,310 -
Commercial construction - - - - 12,788 12,788 -
Land and land development 18 - - 18 10,031 10,049 -
Real estate mortgages
1-4 family residential, first lien, investment - - - - 39,251 39,251 -
1-4 family residential, first lien, owner occupied - - 18 18 16,791 16,809 18
1-4 family residential, junior lien 249 - - 249 3,144 3,393 -
Home equity lines of credit, first lien - - - - 8,968 8,968 -
Home equity lines of credit, junior lien - - - - 13,498 13,498 -
Farm - - - - 10,551 10,551 -
Multifamily - - - - 31,948 31,948 -
Commercial owner occupied - - - - 77,823 77,823 -
Commercial non-owner occupied - - - - 107,828 107,828 -
Consumer loans
Consumer revolving credit - - - - 22,459 22,459 -
Consumer all other credit - 1 - 1 9,704 9,705 -
Student loans purchased 500 162 324 986 50,444 51,430 324
Total Loans $ 767 $ 163 $ 342 $ 1,272 $ 499,752 $ 501,024 $ 342

Past Due Aging as of
December 31, 2016
30-59 60-89 90 Days or 90Days
Past Due
Days Past Days Past More Past Total Past Total and Still
   Due    Due    Due    Due    Current    Loans    Accruing
Commercial loans
Commercial and industrial - organic $        65 $          61 $      - $ 126 $       41,434 $       41,560 $         -
Commercial and industrial - government guaranteed - - - - 5,550 5,550 -
Commercial and industrial - syndicated - - - - 19,107 19,107 -
Real estate construction and land
Residential construction - - - - 395 395 -
Commercial construction - - - - 4,422 4,422 -
Land and land development - - 22 22 10,843 10,865 -
Real estate mortgages
1-4 family residential, first lien, investment 125 - - 125 37,413 37,538 -
1-4 family residential, first lien, owner occupied - - 20 20 16,609 16,629 20
1-4 family residential, junior lien - - - - 2,871 2,871 -
Home equity lines of credit, first lien - - - - 7,912 7,912 -
Home equity lines of credit, junior lien 36 - - 36 13,986 14,022 -
Farm - - - - 11,253 11,253 -
Multifamily - - - - 31,052 31,052 -
Commercial owner occupied - - - - 83,296 83,296 -
Commercial non-owner occupied - - - - 107,062 107,062 -
Consumer loans
Consumer revolving credit - - - - 20,373 20,373 -
Consumer all other credit 1 48 - 49 11,279 11,328 -
Student loans purchased 1,316 139 188 1,643 55,257 56,900 188
Total Loans $ 1,543 $ 248 $ 230 $ 2,021 $ 480,114 $ 482,135 $ 208

Past Due Aging as of June 30, 2020	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due and Still Accruing
Commercial loans
Commercial and industrial - organic	$	45	$	421	$	-	$	466	$	36,993	$	37,459	$	-
Commercial and industrial - Paycheck Protection Program		-		-		-		-		84,244		84,244		-
Commercial and industrial - government guaranteed		-		-		548		548		33,411		33,959		548
Commercial and industrial - syndicated		-		-		-		-		6,374		6,374		-
Real estate construction and land
Residential construction		-		-		-		-		3,208		3,208		-
Commercial construction		-		-		-		-		16,010		16,010		-
Land and land development		-		12		-		12		7,270		7,282		-
Real estate mortgages
1-4 family residential, first lien, investment		-		681		-		681		54,499		55,180		-
1-4 family residential, first lien, owner occupied		-		-		-		-		16,766		16,766		-
1-4 family residential, junior lien		-		-		-		-		2,254		2,254		-
1-4 family residential - purchased		-		384		437		821		26,229		27,050		437
Home equity lines of credit, first lien		-		-		-		-		9,862		9,862		-
Home equity lines of credit, junior lien		-		-		-		-		9,990		9,990		-
Farm		-		-		-		-		7,949		7,949		-
Multifamily		-		-		-		-		32,330		32,330		-
Commercial owner occupied		-		-		-		-		97,267		97,267		-
Commercial non-owner occupied		-		-		-		-		121,823		121,823		-
Consumer loans
Consumer revolving credit		-		20		-		20		18,415		18,435		-
Consumer all other credit		-		-		-		-		4,209		4,209		-
Student loans purchased		123		64		92		279		40,464		40,743		92
Total Loans	$	168	$	1,582	$	1,077	$	2,827	$	629,567	$	632,394	$	1,077

Past Due Aging as of
December 31, 2019

30-59
Days Past
Due

60-89
Days Past
Due

90 Days or
More Past
Due

Total Past
Due

Current

Total
Loans

90 Days
Past Due
and Still
Accruing

Commercial loans

Commercial and industrial - organic

$
604

$
20

$
-

$
624

$
38,219

$
38,843

$
-

Commercial and industrial - government guaranteed

-

-

548

548

34,799

35,347

548

Commercial and industrial - syndicated

-

-

-

-

6,398

6,398

-

Real estate construction and land

Residential construction

-

-

-

-

2,197

2,197

-

Commercial construction

-

-

-

-

6,880

6,880

-

Land and land development

1

-

280

281

7,782

8,063

14

Real estate mortgages

1-4 family residential, first lien, investment

188

-

-

188

43,911

44,099

-

1-4 family residential, first lien, owner occupied

-

123

-

123

20,548

20,671

-

1-4 family residential, junior lien

-

-

-

-

2,520

2,520

-

1-4 family residential - purchased

501

158

-

659

32,769

33,428

-

Home equity lines of credit, first lien

-

-

-

-

10,268

10,268

-

Home equity lines of credit, junior lien

-

-

-

-

9,671

9,671

-

Farm

-

-

-

-

8,808

8,808

-

Multifamily

-

-

-

-

27,093

27,093

-

Commercial owner occupied

-

-

-

-

96,117

96,117

-

Commercial non-owner occupied

0

-

-

0

118,561

118,561

-

Consumer loans

Consumer revolving credit

20

-

-

20

20,061

20,081

-

Consumer all other credit

43

0

-

43

5,698

5,741

-

Student loans purchased

697

218

209

1,124

43,623

44,747

209

Total Loans

$
2,054

$
519

$
1,037

$
3,610

$
535,923

$
539,533

$
771

Note 5. ~~Intangible Assets~~Net Income Per Share

On ~~February 1, 2016 (the “Effective Date”), VNB Wealth purchased~~June 13, 2019, the ~~book~~Board of Directors approved a stock dividend of five percent (5%) on the outstanding shares of common stock of the Company (or .05 share for each share outstanding) which was issued on July 5, 2019 to all shareholders of record as of the close of business ~~including interest~~on June 26, 2019, referred to as the “5% Stock Dividend”. Shareholders received cash in ~~the client relationships (“Purchased Relationships”), from a current officer (the “Seller”)~~lieu of ~~VNB Wealth pursuant~~any fractional shares that they otherwise would have been entitled to an employment and asset purchase agreement (the “Purchase Agreement”). Prior to becoming an employee of VNB Wealth and until the Effective Date of the sale, the Seller provided services to these Purchased Relationships as a sole proprietor. As of January 15, 2016, the fair value of the assets under management associatedreceive in connection with the ~~Purchased Relationships totaled $31.5 million. Under the terms of the Purchase Agreement, the Company will receive all future revenue~~stock dividend. The price paid for ~~investment management, advisory, brokerage, insurance, consulting, trust and related services performed for the Purchased Relationships.~~

The purchase price of $1.2 million is payable over a five year period. During the first quarter of 2016, the Company recognized goodwill and other intangible assets arising from this purchase. As required under ASC Topic 805, “Business Combinations,” using the acquisition method of accounting, below is a summary of the net asset values, as determined by an independent third party,fractional shares was based on the fair value measurements and the purchase price. The intangible assets identified below will be amortized using a straight line method over the estimated useful life, and the amortized cost will be shown as noninterest expense. In accordance with ASC 350, “Intangibles-Goodwill and Other,” the Company will review the carrying value of indefinite lived goodwill at least annually or more frequently if certain impairment indicators exist. (Dollars below reported in thousands.)

Estimated
% of Total Economic Useful
Fair Value Intangible Assets Life
Identified Intangible Assets
Non-Compete Agreement $ 103 9.0% 3 years
Customer Relationships Intangible 670 58.5% 10 years
Total Identified Intangible Assets $ 773 67.5%

Goodwill $ 372 32.5% Indefinite
Total Intangible Assets $ 1,145 100.0%

Through the nine months ended September 2017 and 2016, the Company recognized $87 thousand and $68 thousand, respectively, in amortization expense from these identified intangible assets with a finite life. The net carrying value of $604 thousand will be recognized as amortization expense in future reporting periods through 2026. The following shows the gross and net balance of these intangible assets as of September 30, 2017. (Dollars below reported in thousands.)

Gross Carrying Accumulated Net Carrying
Value Amortization       Value
Identified Intangible Assets
Non-Compete Agreement $      103 $      57 $       46
Customer Relationships Intangible 670 112 $ 558
Total Identified Intangible Assets $ 773 $ 169 $ 604

As of September 30, 2017, the Company carried a contingent liability of $156 thousand, representing the net of the fair value of the purchase price, less the initial two annual payments made to the Seller. The remaining three annual payments as delineated in the Purchase Agreement will be paid from this liability.

~~Note 6. Net Income Per Share and Stock Repurchase Program~~

On September 22, 2014, the Company announced the approval by its Board of Directors of a stock repurchase program authorizing repurchase of up to 400,000 shares of the Company's common shares through September 18, 2015. The Company announced on September 21, 2015 that its Board of Directors extended the program for another year. A total of 343,559 shares at a weightedvolume-weighted average price of ~~$22.89~~a share of common stock for the most recent three (3) days prior to the record date during which a trade of the Company’s stock occurred.

For the following table, share and per share ~~were repurchased through~~data have been adjusted to reflect the ~~program.~~5% Stock Dividend. The ~~program expired on September 18, 2016.~~

~~The following~~table 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 diluted potential common stock for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. Potential dilutive common stock equivalents have no effect on net income available to common shareholders. Unvested restricted stock as noted in the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 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	September 30, 2017					September 30, 2016					June 30, 2020						June 30, 2019
			Weighted	Per				Weighted	Per
			Average	Share				Average	Share
	Net Income		Shares	Amount		Net Income		Shares	Amount		Net Income		Weighted Average Shares		Per Share Amount		Net Income		Weighted Average Shares		Per Share Amount
Basic net income per share	$	1,745	2,401,083	$	0.73	$	1,396	2,366,530	$	0.59	$	2,088		2,710,019	$	0.77	$	2,115		2,688,005	$	0.79
Effect of dilutive stock options		-	20,965		-		-	13,863		-		-		998		-		-		960		-
Diluted net income per share	$	1,745	2,422,048	$	0.72	$	1,396	2,380,393	$	0.59	$	2,088	$	2,711,017	$	0.77	$	2,115	$	2,688,965	$	0.79

Nine Months Ended	September 30, 2017					September 30, 2016
			Weighted	Per				Weighted	Per
			Average	Share				Average	Share
Six Months Ended											June 30, 2020						June 30, 2019
	Net Income		Shares	Amount		Net Income		Shares	Amount		Net Income		Weighted Average Shares		Per Share Amount		Net Income		Weighted Average Shares		Per Share Amount
Basic net income per share	$	5,400	2,387,960	$	2.26	$	4,261	2,369,517	$	1.80	$	3,492		2,701,411	$	1.29	$	3,361		2,683,122	$	1.25
Effect of dilutive stock options		-	21,521		-		-	14,393		-		-		900		-		-		4,269		-
Diluted net income per share	$	5,400	2,409,481	$	2.24	$	4,261	2,383,910	$	1.79	$	3,492	$	2,702,311	$	1.29	$	3,361	$	2,687,391	$	1.25

For the ~~nine-month period~~six months ended ~~September~~June 30, ~~2017,~~2020, there were no104,301 option shares considered anti-dilutive and excluded from this calculation. For the ~~nine-month period~~six months ended ~~September~~June 30, ~~2016,~~2019, there were 66,308 option shares, ~~totaling 59,110 were~~as adjusted, considered anti-dilutive and ~~were~~ excluded from this calculation.

Note 7.6. Stock Incentive Plans

At the Annual Shareholders Meeting on May 21, 2014, shareholders approved the Virginia National Bankshares Corporation 2014 Stock Incentive Plan (“2014 Plan”). The 2014 Plan makes available up to ~~250,000~~275,625 shares of the Company’s common stock, as adjusted by the 5% Stock Dividend and prior stock dividends, to be issued to plan participants. ~~Similar to the Company’s 2003 Stock Incentive Plan (“2003 Plan”) and 2005 Stock Incentive Plan (“2005 Plan”), the~~The 2014 Plan provides for granting of both incentive and nonqualified stock options, as well as restricted stock and other stock based awards. NoNaN new grants will be issued under the ~~2003~~2005 Stock Incentive Plan or(“2005 Plan”) as this plan has expired.

For the 2014 Plan and the 2005 Plan ~~as these plans have expired.~~

~~For all of the Company’s stock incentive plans~~ (the “Plans”), the option price of incentive stock options will not be less than the fair value of the stock at the time an option is granted. Nonqualified stock options may be granted at prices established by the Board of Directors, including prices less than the fair value on the date of grant. Outstanding stock options generally expire in ten years from the grant date. 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 ~~September~~June 30, ~~2017.~~2020. Share data and exercise price range per share have been adjusted to reflect the 5% Stock Dividend and prior stock dividends. Although the ~~2003 Plan and~~ 2005 Plan ~~have~~has expired and no0 new grants will be issued under ~~these plans,~~this plan, there were options issued before the ~~plans~~plan expired ~~which~~that are still outstanding as shown below.

	2003 Plan			2005 Plan			2014 Plan			2005 Plan			2014 Plan
Aggregate shares issuable		128,369			230,000			250,000			253,575			275,625
Options issued, net of forfeited and expired options		(108,054	)		(67,507	)		(2,000	)		(59,870	)		(122,047	)
Unrestricted stock issued											-			(11,535	)
Restricted stock grants issued											-			(26,268	)
Cancelled due to Plan expiration		(20,315	)		(162,493	)		-			(193,705	)		-
Remaining available for grant		-			-			248,000			-			115,775

Grants issued and outstanding:

Total vested and unvested shares		15,568			26,357			2,000			1,379			105,404

Fully vested shares		15,568			25,107			-			1,379			13,722

Exercise price range	$ $	18.26 to 18.26		$ $	11.74 to 23.26		$ $	30.20 to 30.20		$13.69 to $13.69			$26.00 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. Stock-based compensation arrangements include stock options and restricted stock. All stock-based payments to employees are required to be valued at a fair value on the date of grant and expensed based on that fair value over the applicable vesting period.

Stock Options

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

	June 30, 2020
	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2020		80,783	$	40.76
Issued		26,000		26.00
Exercised		—		—
Expired		—		—
Outstanding at June 30, 2020		106,783	$	37.17	$	16

Options exercisable at June 30, 2020		28,356	$	40.53	$	16

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the Company recognized $8$58 thousand and ~~$20~~$47 thousand, respectively, in compensation expense for stock options. As of ~~September~~June 30, ~~2017,~~2020, there was ~~$10~~$377 thousand in ~~unamortized~~unrecognized compensation expense remaining to be recognized in future reporting periods through ~~2021.~~

~~Stock Options~~

~~Changes in the stock options outstanding related to all of the Plans are summarized as follows (dollars in thousands except per share data):~~

September 30, 2017
Weighted Average Aggregate
Number of Options Exercise Price Intrinsic Value
Outstanding at January 1, 2017 98,893 $ 22.83 $ 592
Issued 2,000 30.20
Exercised (41,903 ) 22.70
Forfeited (4,600 ) 26.96
Expired (10,465 ) 30.86
Outstanding at September 30, 2017 43,925 $ 20.96 $ 656

Options exercisable at September 30, 2017 40,675 $ 20.59 $ 623

2025. The fair value of any stock option grant is estimated at the grant date using the Black-Scholes pricing model. ~~There were no~~26,000 stock option grants were issued during the ~~twelve~~six months ended ~~December 31, 2016. During the first nine months of 2017, a~~June 30, 2020, and 420 stock option ~~grant of 2,000 shares was~~grants were issued during the six months ended June 30, 2019. NaN stock option grants were issued during the three months ended June 30, 2020 and 420 stock option grants were issued during the three months ended June 30, 2019. The fair value ~~on the grant issued~~of each option granted in 2020 was estimated based on the assumptions noted in the following table:

	For the ~~nine~~six months ended
	~~September~~ June 30, ~~2017~~2020
Expected volatility¹	~~17.90~~	24.33	%
Expected dividends²	~~1.72~~	4.75	%
Expected term (in years)³	~~6.25~~	6.50
Risk-free rate⁴	~~2.00~~	0.72	%

	1
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 June 30, 2020 is shown below. Share and per share data have been adjusted to reflect the 5% Stock Dividend and prior stock dividends.

	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
$10.65 to $20.00		1,379	2.6 Years	$	13.69		1,379	$	13.69
$20.01 to $30.00		27,103	9.6 Years		26.06		551		27.39
$30.01 to $40.00		20,820	8.7 Years		38.14		3,444		39.44
$40.01 to $42.62		57,481	7.9 Years		42.62		22,982		42.62
Total		106,783	8.4 Years	$	37.17		28,356	$	40.53

Stock Grants

Unrestricted stock grants - NaN unrestricted stock grants were issued in the first six months of 2020. On February 20, 2019, a total of 11,535 shares of unrestricted stock, as adjusted for the 5% Stock Dividend, were granted to non-employee directors and certain members of executive management for services to be provided during the year ended December 31, 2019. Based on the market price on February 20, 2019 of $38.65, the total expense for these shares of $424 thousand was expensed in 2019 as those services were provided. As of June 30, 2019, $212 thousand of this total had been realized in stock grant expense.

Restricted stock grants – In September 2019, 4,000 restricted shares were granted to certain members of executive management, 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. In April 2020, 1,900 shares were issued to lenders in accordance with an internal lender incentive plan, vesting over a five-year period, and in May 2020, 10,000 restricted shares were granted to certain members of executive management, vesting over a four-year period. For the three and six months ended June 30, ~~2017 is~~2020, $39 thousand and $54 thousand, respectively, was expensed as ~~follows:~~a result of restricted stock grants. As of June 30, 2020, there was $643 thousand in unrecognized compensation expense for restricted stock grants remaining to be recognized in future reporting periods through 2025. For the three and six months ended June 30, 2019, there was 0 expense incurred, and as of June 30, 2019, there was 0 unrecognized compensation expense, for restricted stock grants, as 0 restricted stock had been granted during or at such time.

Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Number of Average Average Number of Average
Options Remaining Exercise Options Exercise
Exercise Price       Outstanding       Contractual Life       Price       Exercisable       Price
$     11.74 to 20.00 19,118 2.1 Years $ 17.84 17,868 $ 17.82
$     20.01 to 30.00 22,807 0.9 Years 22.76 22,807 22.76
$     30.01 to 36.74 2,000 9.5 Years 30.20 0 -
Total 43,925 1.8 Years $ 20.96 40,675 $ 20.59

~~Restricted Stock~~

~~There were no~~Changes in the restricted stock grants outstanding ~~throughout 2016 or as of September~~during the six months ended June 30, ~~2017. No restricted stock grants were awarded during 2016 or the first nine months of 2017.~~2020 are summarized below. (Dollars in thousands except per share data):

	June 30, 2020
	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Nonvested as of January 1, 2020		4,000	$	36.00	$	101
Issued		22,268		25.34	562
Vested		—		—
Nonvested at June 30, 2020		26,268	$	28.78	$	663

Note 8.7. Fair Value Measurements

Determination of Fair Value

The Company follows ASC 820, “Fair Value Measurements and Disclosures,” to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification clarifies that the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

	Level 1 –		Valuation is based on quoted prices in active markets for identical assets and liabilities.

	Level 2 –		Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

	Level 3 –		Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements:

Securities available for sale

Securities 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).

The following tables present the balances measured at fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):

Fair Value Measurements at September 30, 2017 Using:
Quoted Prices in Significant Other Significant
Active Markets for Observable Unobservable
Identical Assets Inputs Inputs
Description Balance (Level 1) (Level 2) (Level 3)
Assets:
U.S. Government agencies $ 19,166 $ - $ 19,166 $ -
Mortgage-backed securities/CMOs 31,624 - 31,624 -
Municipal bonds 20,259 - 20,259 -
Total securities available for sale $ 71,049 $ - $ 71,049 $ -

Fair Value Measurements at December 31, 2016 Using:
Quoted Prices in Significant Other Significant
Active Markets for Observable Unobservable
Identical Assets Inputs Inputs
Description Balance (Level 1) (Level 2) (Level 3)
Assets:
U.S. Government agencies $ 14,501 $ - $ 14,501 $ -
Corporate bonds 2,010 - 2,010 -
Mortgage-backed securities/CMOs 24,982 - 24,982 -
Municipal bonds 15,169 - 15,169 -
Total securities available for sale $ 56,662 $ - $ 56,662 $ -

			Fair Value Measurements at June 30, 2020 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government agencies	$	9,037	$	-	$	9,037	$	-
Mortgage-backed securities/CMOs		58,402		-		58,402		-
Municipal bonds		35,333		-		35,333		-
Total securities available for sale	$	102,772	$	-	$	102,772	$	-

			Fair Value Measurements at December 31, 2019 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government agencies	$	14,952	$	-	$	14,952	$	-
Corporate bonds		7,469		-		7,469		-
Mortgage-backed securities/CMOs		71,732		-		71,732		-
Municipal bonds		19,888		-		19,888		-
Total securities available for sale	$	114,041	$	-	$	114,041	$	-

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements:

~~Impaired Loans~~

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3.

The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. 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 $2.5 million as of September 30, 2017 and $2.4 million as of December 31, 2016. None of these impaired loans required a valuation allowance 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 customer.

Other Real Estate Owned

Other real estate owned (“OREO”) is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment is charged against the Allowance for Loan Losses. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Consolidated Statements of Income. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had no0 OREO property.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on either (a) the observable market price of the loan or the fair value of the collateral, or (b) using the present value of expected future cash flows discounted at the loan’s effective interest rate, which is not a fair value measurement. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3.

Impaired loans that are measured based on expected future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest are not recorded at fair value, and are therefore excluded from fair value disclosure requirements.

Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. 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 $2.1 million as of June 30, 2020 and $2.5 million as of December 31, 2019. 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.

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.

~~Cash and cash equivalents~~

~~For those short-term~~The Company uses the exit price notion in calculating the fair values of financial instruments ~~including cash, due from banks, federal funds sold and interest-bearing deposits maturing within ninety days, the carrying amount is a reasonable estimate of fair value.~~

~~Securities~~

Fair values for securities, excluding restricted securities, are based on third party vendor pricing models. The carrying value of restricted securities consists of stock in FRB, FHLB, and CBBFC and is based on the redemption provisions of each entity and therefore excluded from the following table.

~~Loans~~

~~The~~not measured at fair value of performing loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar remaining maturities. This calculation ignores loan fees and certain factors affecting the interest rates charged on various loans, such as the borrower’s creditworthiness and compensating balances and dissimilar types of real estate held as collateral. The fair value of impaired loans is measured as described within the Impaired Loans section of this note.a recurring basis.

~~Bank owned life insurance~~

~~The carrying amounts of bank owned life insurance approximate fair value.~~

~~Accrued interest~~

~~The carrying amounts of accrued interest approximate fair value.~~

~~Deposit liabilities~~

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

~~Repurchase agreements and other borrowings~~

~~The carrying amounts of repurchase agreements and other borrowings, including federal funds purchased and FHLB advances, approximate fair value.~~

~~Off-balance sheet financial instruments~~

Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. For the reporting period, the fair value of unfunded loan commitments and standby letters of credit were deemed to be immaterial and therefore, they have not been included in the following tables.

The carrying values and estimated fair values of the Company's financial instruments as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are as follows (dollars in thousands):

Fair Value Measurement at September 30, 2017 using:
Quoted Prices Significant
in Active Other Significant
Markets for Observable Unobservable
Identical Assets Inputs Inputs
Carrying value Level 1 Level 2 Level 3 Fair Value
Assets
Cash and cash equivalent $ 10,298 $ 10,298 $ - $ - $ 10,298
Available for sale securities 71,049 - 71,049 - 71,049
Loans, net 497,200 - - 490,081 490,081
Bank owned life insurance 14,229 - 14,229 - 14,229
Accrued interest receivable 1,850 - 395 1,455 1,850

Liabilities
Demand deposits and interest-bearing transaction and money market accounts $ 393,221 $ - $ 393,221 $ - $ 393,221
Certificates of deposit 114,049 - 113,992 - 113,992
Repurchase agreements and other borrowings 37,001 - 37,001 - 37,001
Accrued interest payable 123 - 123 - 123

Fair Value Measurement at December 31, 2016 using:
Quoted Prices Significant
in Active Other Significant
Markets for Observable Unobservable
Identical Assets Inputs Inputs
Carrying value Level 1 Level 2 Level 3 Fair Value
Assets
Cash and cash equivalent $ 38,500 $ 38,500 $ - $ - $ 38,500
Available for sale securities 56,662 - 56,662 - 56,662
Loans, net 478,447 - - 476,438 476,438
Bank owned life insurance 13,917 - 13,917 - 13,917
Accrued interest receivable 1,662 - 272 1,390 1,662

Liabilities
Demand deposits and interest-bearing transaction and money market accounts $ 409,625 $ - $ 409,625 $ - $ 409,625
Certificates of deposit 115,026 - 114,979 - 114,979
Repurchase agreements and other borrowings 19,700 - 19,700 - 19,700
Accrued interest payable 107 - 107 - 107

			Fair Value Measurements at June 30, 2020 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying value		Level 1		Level 2		Level 3		Fair Value
Assets
Cash and cash equivalent	$	34,887	$	34,887	$	-	$	-	$	34,887
Available for sale securities		102,772		-		102,772		-		102,772
Loans, net		624,477		-		-		615,070		615,070
Bank owned life insurance		16,628		-		16,628		-		16,628
Accrued interest receivable		2,548		-		336		2,212		2,548

Liabilities
Demand deposits and
interest-bearing transaction, money market, and savings accounts	$	617,602	$	-	$	617,602	$	-	$	617,602
Certificates of deposit and other time deposits		96,599		-		97,646		-		97,646
Accrued interest payable		208		-		208		-		208

			Fair Value Measurements at December 31, 2019 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying value		Level 1		Level 2		Level 3		Fair Value
Assets
Cash and cash equivalent	$	19,085	$	19,085	$	-	$	-	$	19,085
Available for sale securities		114,041		-		114,041		-		114,041
Loans, net		535,324		-		-		523,507		523,507
Bank owned life insurance		16,412		-		16,412		-		16,412
Accrued interest receivable		2,240		-		385		1,855		2,240

Liabilities
Demand deposits and
interest-bearing transaction and money market accounts	$	511,933	$	-	$	511,933	$	-	$	511,933
Certificates of deposit and other time deposits		109,278		-		109,848		-		109,848
Accrued interest payable		295		-		295		-		295

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. Consequently, the fair values of the Company’s financial instruments will fluctuate when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk; however, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Note 9.8. Other Comprehensive Income

A component of the Company’s other comprehensive income, in addition to net income from operations, is the recognition of the unrealized gains and losses on available for sale securities, net of income taxes. Reclassifications of realized gains and losses on available for sale securities are reported in the income statement as “Gains ~~(losses)~~ on sales ~~and calls~~ of securities” with the corresponding income tax effect reflected as a component of income tax expense. Amounts reclassified out of accumulated other comprehensive income are presented below for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):

Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Available for sale securities:
Realized gains (losses) on sales and calls of securities $ (78 ) $ 181 $ (74 ) $ 189
Tax effect 27 (62 ) 25 (64 )
Realized gains (losses), net of tax $ (51 ) $ 119 $ (49 ) $ 125

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Available for sale securities
Realized gains on sales of securities	$	590		$	64		$	643		$	64
Tax effect		(124	)		(13	)		(135	)		(13	)
Realized gains, net of tax	$	466		$	51		$	508		$	51

Note ~~10.~~9. Segment Reporting

~~Virginia National Bankshares Corporation~~Beginning in 2019, the Company has ~~two~~4 reportable ~~segments, the Bank and VNB Wealth.~~

The Company’s 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 this segment.

The VNB Wealth segment includes (a) trust income from the investment management, wealth advisory and trust and estate services offered by VNBTrust, comprised of both management fees and performance fees, (b) advisory and brokerage income from investment advisory, retail brokerage, annuity and insurance services offered under the name of VNB Investment Services and (c) royalty income from the sale of Swift Run Capital Management, LLC in 2013. More information on royalty income and the related sale can be found under Summary of Significant Accounting Policies in Note 1 of the notes to consolidated financial statements, which is found in Item 8. Financial Statements and Supplementary Data, in the Company’s Form 10-K Report for December 31, 2016 (the “Company’s 2016 Form 10-K”).

A management fee for administrative and technology support services provided by the Bank is charged to VNB Wealth. For both the nine months ended September 30, 2017 and 2016, management fees of $75 thousand were charged to VNB Wealth and eliminated in consolidated totals.

~~The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.~~segments. Each reportable segment is a strategic business unit that offers different products and services. They are managed separately, because each segment appeals to different markets and, accordingly, require different technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.

The 4 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.

•

Sturman Wealth Advisors – Sturman Wealth Advisors, formerly known as VNB Investment Services, offers wealth management and investment advisory services. Revenue for this segment is generated primarily from investment advisory and financial planning fees, with a small and decreasing portion attributable to brokerage commissions.

•

VNB Trust & Estate Services – VNB Trust & Estate Services offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenue for this segment is generated from administration, service and custody fees, as well as management fees which are derived from Assets Under Management and incentive income which is based on the investment returns generated on performance-based 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 & Estate Services. More information on royalty income and the related sale can be found under Summary of Significant Accounting Policies in Note 1 of the notes to consolidated financial statements, which is found in Item 8. Financial Statements and Supplementary Data, in the Company’s Form 10-K Report for December 31, 2019.

•

Masonry Capital - Masonry Capital offers investment management services for separately managed accounts and a private investment fund employing a value-based, catalyst-driven investment strategy. Revenue for this segment is generated from 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.

A management fee for administrative and technology support services provided by the Bank is allocated to the other three lines of business previously combined under VNB Wealth. For both the three months ended June 30, 2020 and 2019, management fees totaling $25 thousand were charged by the Bank and eliminated in consolidated totals. For both the six months ended June 30, 2020 and 2019, management fees totaling $50 thousand were charged by the Bank and eliminated in consolidated totals.

Segment information for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 is shown in the following tables (dollars in thousands). ~~The~~Note that asset information is not reported below, as the assets previously allocated to VNB Wealth ~~total~~are

reported at the Bank level subsequent to the merger of VNBTrust, National Association, into the Bank effective July 1, 2018; also, assets specifically allocated to the VNB Wealth lines of business are insignificant and are no longer provided to the chief operating decision maker.

Three months ended June 30, 2020	Bank		Sturman Wealth Advisors		VNB Trust & Estate Services			Masonry Capital			Consolidated
Net interest income	$	5,755	$	-	$	-		$	-		$	5,755
Provision for loan losses		378		-		-			-			378
Noninterest income		1,211		162		175			78			1,626
Noninterest expense		3,811		154		234			205			4,404
Income (loss) before income taxes		2,777		8		(59	)		(127	)		2,599
Provision for income taxes		547		2		(12	)		(26	)		511
Net income (loss)	$	2,230	$	6	$	(47	)	$	(101	)	$	2,088


Six months ended June 30, 2020	Bank		Sturman Wealth Advisors		VNB Trust & Estate Services			Masonry Capital			Consolidated
Net interest income	$	11,130	$	-	$	-		$	-		$	11,130
Provision for loan losses		1,143		-		-			-			1,143
Noninterest income		2,346		340		433			176			3,295
Noninterest expense		7,774		328		472			373			8,947
Income (loss) before income taxes		4,559		12		(39	)		(197	)		4,335
Provision for income taxes		889		3		(8	)		(41	)		843
Net income (loss)	$	3,670	$	9	$	(31	)	$	(156	)	$	3,492

Three months ended June 30, 2019	Bank			Sturman Wealth Advisors		VNB Trust & Estate Services		Masonry Capital			Consolidated
Net interest income	$	5,461		$	-	$	-	$	-		$	5,461
Provision for (recovery of) loan losses		(64	)		-		-		-			(64	)
Noninterest income		1,137			156		348		59			1,700
Noninterest expense		4,073			147		303		162			4,685
Income (loss) before income taxes		2,589			9		45		(103	)		2,540
Provision for income taxes		435			2		10		(22	)		425
Net income (loss)	$	2,154		$	7	$	35	$	(81	)	$	2,115

Six months ended June 30, 2019	Bank			Sturman Wealth Advisors		VNB Trust & Estate Services		Masonry Capital			Consolidated
Net interest income	$	11,029		$	-	$	-	$	-		$	11,029
Provision for loan losses		620			-		-		-			620
Noninterest income		1,710			292		694		63			2,759
Noninterest expense		7,872			283		610		331			9,096
Income (loss) before income taxes		4,247			9		84		(268	)		4,072
Provision for income taxes		747			2		18		(56	)		711
Net income (loss)	$	3,500		$	7	$	66	$	(212	)	$	3,361

Note 10. Leases

On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. Lease payments for short-term leases are recognized as ~~shown~~lease expense on a straight-line basis over the lease term. Payments for leases with terms longer than twelve months are included in the determination of the lease liability. The right-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.

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. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease for a term similar to the length of the lease, including any probable renewal options available. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

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.

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

	June 30, 2020
Lease liability	$	3,966
Right-of-use asset	$	3,923
Weighted average remaining lease term	5.55 years
Weighted average discount rate		2.56	%

	Three Months Ended June 30,				Six Months Ended June 30,
Lease Expense	2020		2019		2020		2019
Operating lease expense	$	204	$	204	$	408	$	408
Short-term lease expense		29		37		57		73
Total lease expense	$	233	$	241	$	465	$	481
Cash paid for amounts included in lease liabilities	$	199	$	197	$	398	$	393

A maturity analysis of ~~VNB Wealth~~operating lease liabilities and ~~should not be confused with client assets under management.~~reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):

Three months ended September 30, 2017       Bank       VNB Wealth       Consolidated
Net interest income $ 5,457 $ 26 $ 5,483
Provision for loan losses 168 - 168
Noninterest income 610 548 1,158
Noninterest expense 3,380 537 3,917
Income before income taxes 2,519 37 2,556
Provision for income taxes 798 13 811
Net income $ 1,721 $       24 $ 1,745
Total assets $ 600,690 $ 9,638 $ 610,328

Three months ended September 30, 2016 Bank VNB Wealth Consolidated
Net interest income $ 4,526 $ 11 $ 4,537
Provision for loan losses 104 - 104
Noninterest income 909 504 1,413
Noninterest expense 3,291 530 3,821
Income (loss) before income taxes 2,040 (15 ) 2,025
Provision for (benefit of) income taxes 634 (5 ) 629
Net income (loss) $ 1,406 $ (10 ) $ 1,396
Total assets $ 559,933 $ 9,606 $ 569,539

Nine months ended September 30, 2017 Bank VNB Wealth Consolidated
Net interest income $ 15,798 $ 66 $ 15,864
Provision for loan losses 213 - 213
Noninterest income 1,977 1,757 3,734
Noninterest expense 9,858 1,597 11,455
Income before income taxes 7,704 226 7,930
Provision for income taxes 2,452 78 2,530
Net income $ 5,252 $ 148 $ 5,400

Nine months ended September 30, 2016 Bank VNB Wealth Consolidated
Net interest income $ 13,447 $ 34 $       13,481
Provision for (recovery of) loan losses (291 ) - (291 )
Noninterest income 2,332 1,455 3,787
Noninterest expense 9,645 1,732 11,377
Income (loss) before income taxes 6,425 (243 ) 6,182
Provision for (benefit of) income taxes 2,003 (82 ) 1,921
Net income (loss) $      4,422 $ (161 ) $ 4,261

Undiscounted Cash Flow	June 30, 2020
Six months ending December 31, 2020	$	426
Twelve months ending December 31, 2021		877
Twelve months ending December 31, 2022		839
Twelve months ending December 31, 2023		753
Twelve months ending December 31, 2024		544
Twelve months ending December 31, 2025		469
Thereafter		372
Total undiscounted cash flows	$	4,280
Less: Discount		(314	)
Lease liability	$	3,966

~~ITEM 2.~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with Virginia National Bankshares Corporation’s consolidated financial statements, and notes thereto, included in the Company’s Form 10-K for the year ended December 31, ~~2016, included in~~2019. Per share data for June 30, 2019 has been adjusted to reflect the ~~Company’s 2016 Form 10-K.~~5% stock dividend effective July 5, 2019 (the “5% Stock Dividend”). Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of the results for the year ending December 31, ~~2017~~2020 or any future period.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD AFFECT FUTURE RESULTS

Certain statements contained or incorporated by reference in this quarterly report on Form 10-Q, includingbut not limited to, statements concerning future results of operations or financial position, borrowing capacity and future liquidity, future investment results, future credit exposure, future loan losses and plans and objectives for future operations, change in laws and regulations applicable to the Company and its subsidiaries, adequacy of funding sources, actuarial expected benefit payment, valuation of foreclosed assets, regulatory requirements, economic environment and other statements contained herein regarding matters that are not historical facts, are “forward-looking statements” ~~as defined in~~within the meaning of the Private Securities ~~Exchange~~Litigation Reform Act of ~~1934.~~1995. Such statements are often characterized by use of qualified words such as “expect,” “believe,” “estimate,” “project,” “anticipate,” “intend,” “will,” ~~“should”~~“should,” or words of similar meaning or other statements concerning the opinions or ~~judgment~~judgement of the Company and its management about future events. ~~These~~While Company management believes such statements ~~are not historical facts but instead~~to be reasonable, future events and predictions are subject to ~~numerous~~circumstances that are not within the control of the Company and its management. Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, without limitation, the effects of and changes in: general economic and market conditions, including the effects of declines in real estate values, an increase in unemployment levels and general economic contraction as a result of COVID-19 or other pandemics; fluctuations in interest rates, deposits, loan demand, and asset quality; assumptions that underlie the Company’s allowance for loan losses; the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (e.g., COVID-19 or other pandemics), and of governmental and societal responses thereto; the performance of vendors or other parties with which the Company does business; competition; technology; laws, regulations and guidance; accounting principles or guidelines; performance of assets under management; and other factors impacting financial services businesses. Many of these factors and additional risks and uncertainties are described in the Company’s Form 10-K for the year ended December 31, 2019 (the Company’s 2019 Form 10-K) and ~~represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Any forward-looking statements made~~other reports filed from time to time by the Company with the Securities and Exchange Commission. These statements speak only as of the date ~~on which such statements are made. Our actual results~~made, and ~~financial position may differ materially from~~ the ~~anticipated results and financial condition indicated in or implied by these forward-looking statements. The~~ Company ~~makes no commitment~~does not undertake to update ~~or revise~~any forward-looking statements ~~in order~~ to reflect ~~new information~~changes or ~~subsequent~~ events that may occur after this release.

IMPACT OF COVID-19

The COVID-19 pandemic has caused, and will likely continue to cause, economic and social disruption, significantly affecting many industries, including many of our clients. Significant uncertainty exists regarding the magnitude of the impact and duration of this pandemic. Following are brief descriptions of areas within our Company that have been or ~~changes in expectations.~~may be impacted.

~~Factors that could cause our actual results to differ materially from those in the forward-looking~~Financial Condition and Results of Operations

The Company’s consolidated financial statements include ~~but are not limited to,~~estimates and assumptions made by management which affect the ~~following: inflation, interest rates, market~~reported amounts of assets and ~~monetary fluctuations; geopolitical developments~~liabilities, including ~~acts~~the level of war and terrorism and their impact on economic conditions; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; changes, particularly declines, in economic and business conditions, both generally and in the local markets in which the Company operates; the financial condition of the Company’s borrowers; competitive pressures on loan and deposit pricing and demand; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); changes in accounting principles, policies and guidelines; the ability to retain key personnel; incorrect assumptions regarding the allowance for loan ~~losses; risks~~losses (ALLL) that is established. While the Company has not yet experienced any charge-offs directly related to COVID-19, the ALLL calculation and ~~assumptions associated~~resulting provision for loan losses are impacted by changes in economic conditions. As of March 31, 2020 and June 30, 2020, the Company downgraded the economic qualitative factors within its ALLL model in light of the effects of COVID-19 on the economy. If economic conditions continue to worsen, the Company could experience further increases in the required ALLL and record additional provision for loan loss expense. It is possible that asset quality metrics could decline in the future if the effects of COVID-19 are sustained.

While most industries have been adversely impacted by COVID-19, the Company has exposures on its balance sheet as of June 30, 2020 in the following categories of loans that are considered to have higher risk of significant impact:

•

Retail trade - $18.1 million, or 3.3% of loans

•

Hotels and motels - $14.3 million, or 2.6% of loans

•

Wholesale trade - $11.1 million, or 2.0% of loans

•

Arts, entertainment and recreation - $6.6 million, or 1.2% of loans

•

Caterers - $6.3 million, or 1.2% of loans, and

•

Full-service restaurants - $6.0 million, or 1.1% of loans

Note that the loan balances and percentages above do not include Small Business Administration (SBA) Paycheck Protection Program (PPP) loans made to entities within such categories.

Interest income could be reduced due to the economic impact of COVID-19. In accordance with ~~mergers~~guidance from regulators, we are working with borrowers who have been adversely affected by COVID-19 to defer principal only, or principal and ~~acquisitions~~interest payments for a 90- to 180-day period. While interest will continue to accrue to income, in accordance with accounting principles generally accepted in the United States (“GAAP”), if the Company ultimately incurs a credit loss on these deferred payments, interest income would need to be reversed and ~~other expansion activities; other risks~~therefore, interest income in future periods could be negatively affected. Since the beginning of the pandemic, the Company has accommodated 169 deferrals on outstanding loan balances of $56.8 million (of which 131 deferrals on outstanding loan balances of $1.8 million were related to student loans). In accordance with interagency guidance issued in March 2020, these short-term deferrals are not considered troubled debt restructurings.

Within the second quarter of 2020, the Company devoted significant resources to accept PPP applications, a program designed to provide a direct incentive for small businesses to keep employees on their payroll. In total, the Company has closed 574 loans representing $86.9 million in funding, with average origination fees of 3.4%, assisting many nonprofits and ~~uncertainties described~~local businesses through this program. Loans funded through the PPP are fully guaranteed by the U.S. government. The Company performed the required due diligence pursuant to the established SBA criteria; nonetheless if a determination was made that certain loans did not meet the criteria established for the program, the Company may be required to establish additional ALLL through provision for loan loss expense which will negatively impact net income.

Throughout the onset of this pandemic, the Company has maintained its high standards of credit quality on organic loan funding to limit credit risk exposure.

Capital and Liquidity

As of June 30, 2020, capital ratios of the Company were in excess of regulatory requirements. While currently included in the category of “well capitalized” by bank regulators, a prolonged economic recession could adversely impact reported and regulatory capital ratios.

The Company maintains access to multiple sources of liquidity. Management has also revisited its capital and liquidity stress tests, as well as capital and liquidity contingency plans to validate how the Company can react effectively to the economic downturn caused by this pandemic and to gauge the amount of SBA PPP loans the Company can and should accept.

Goodwill

As of June 30, 2020, the goodwill on our balance sheet was not deemed to be impaired. However, management may determine that goodwill is required to be evaluated for impairment in the future due to the presence of a triggering event, which may have a negative impact on the Company’s results of operations.

Operations, Processes, Controls and Business Continuity Plan

The Company began internal social distancing in mid-March, as well as distancing from ~~time~~the public by keeping our drive-thru services available, and encouraging customers to ~~time in press releases and other public filings;~~conduct transactions at ATMs, through online banking and the mobile app. The Company also increased consumer and business mobile deposit limits to encourage customers to make deposits remotely from the safety of their home or business. The Company implemented a schedule whereby the majority of staff members are working remotely at any given time, allowing the remaining essential staff to create more distance between each other within the offices. We increased the number of staff in the client service center to assist more customers by telephone. The client service center was also moved to a larger location to allow the team members to be physically separated in accordance with social distancing guidelines. In addition, the Company enhanced disinfecting procedures to include hospital-grade cleaning solution, increased the frequency of cleaning and issued personal protective equipment, including N-95 and disposable face masks, gloves and thermometers, to employees, along with specific instructions for use, to enhance their safety. Management provides frequent email communications to customers and employees regarding updates on COVID-19, helpful tips and status of Company initiatives, as well as warning customers of potential scams during this pandemic. Beginning mid-July, the Company took steps to resume normal branch activities with specific guidelines in place to continue protecting our customers and employees.

The Company’s ~~performance~~preparedness resulted in ~~managing~~minimal impact to the ~~risks involved in any~~Company’s operations as a result of COVID-19. Business continuity planning allowed for successful deployment of the ~~foregoing. The foregoing list~~majority of ~~important factors is not exclusive,~~our employees to work in a remote environment. No material operational or internal control risks have been identified to date, and the Company ~~will not update any forward-looking statement, whether written or oral, that may be made from time to time.~~has enhanced fraud-related controls.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP and to general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

The Company considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s consolidated financial statements.The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of financial condition and results of operations.

For additional information regarding critical accounting policies, refer to the Application of Critical Accounting Policies and Critical Accounting Estimates section under Item 7 in the Company’s ~~2016~~2019 Form 10-K. There have been no significant changes in the Company’s application of critical accounting policies since December 31, ~~2016.~~2019.

FINANCIAL CONDITION

Total assets

The total assets of the Company as of ~~September~~June 30, ~~2017~~2020 were ~~$610.3~~$799.6 million. This is a ~~$5.3~~$97.0 million increase from the ~~$605.0~~$702.6 million total assets reported at December 31, ~~2016~~2019 and a ~~$40.8~~$165.8 million increase from the ~~$569.5~~$633.8 million reported at ~~September~~June 30, ~~2016. The year-over-year net growth~~2019. A $92.9 million increase in gross loans, primarily from the origination of $86.9 million in PPP loans, was the major reason for the increase in assets ~~was funded largely by a $23.5 million expansion in short-term borrowings and a $12.1 million expansion in deposits.~~since year-end.

Federal funds sold

The Company had overnight federal funds sold of ~~$3.2~~$24.8 million ~~at September~~as of June 30, ~~2017,~~2020, compared to ~~$28.5 million and $32.9~~$4.2 million as of December 31, ~~2016~~2019 and ~~September~~$12.3 million as of June 30, ~~2016, respectively.~~2019. Any excess funds are sold on a daily basis in the federal funds market. The Company intends to maintain sufficient liquidity at all times to meet its funding commitments.

The Company continues to participate in the Federal Reserve Bank of Richmond’s Excess Balance Account (“EBA”). The EBA is a limited-purpose account at the Federal Reserve Bank for the maintenance of excess cash balances held by financial institutions. The EBA eliminates the potential of concentration risk that comes with depositing excess balances with one or multiple correspondent banks.

Securities

The Company’s investment securities portfolio as of ~~September~~June 30, ~~2017~~2020 totaled ~~$73.8~~$104.5 million, ~~an increase~~a decrease of ~~$15.4~~$11.2 million ~~from~~compared with the ~~$58.4~~$115.7 million reported at December 31, ~~2016~~2019 and an increase of ~~$1.6~~$46.0 million from the ~~$72.2~~$58.5 million reported at ~~September~~June 30, ~~2016.~~2019. Management proactively manages the mix of earning assets and cost of funds to maximize the earning capacity of the Company. ~~Throughout the third quarter of 2017, lower earning securities were sold~~At June 30, 2020 and ~~the proceeds were either used to purchase higher yielding securities or fund higher earning loans as the loan funding needs arose. At September 30, 2017,~~December 31, 2019, the investment securities holdings represented ~~12.1%~~13.1% and 16.5% of the Company’s total assets, ~~compared to 9.7% and 12.7% of total assets at December 31, 2016 and September 30, 2016,~~ respectively.

The Company’s investment securities portfolio included restricted securities totaling ~~$2.7 million as of September 30, 2017 and~~ $1.7 million as of June 30, 2020, December 31, ~~2016~~2019, and ~~September~~June 30, ~~2016.~~2019. These securities represent stock in the Federal Reserve Bank of Richmond (“FRB-R”), the Federal Home Loan Bank of Atlanta (“FHLB-A”), and CBB Financial Corporation (“CBBFC”), the holding company for Community Bankers Bank. The level of FRB-R and FHLB-A stock that the Company is required to hold is determined in accordance with membership guidelines provided by the Federal Reserve Bank Board of Governors orand the Federal Home Loan Bank of ~~Atlanta. The $1.0 million increase from year-end was required by FHLB-A as a result of the Company’s short-term borrowing initiated during the third quarter of 2017.~~Atlanta, respectively. Stock ownership in the bank holding company for Community

Bankers’ Bank provides the ~~Bank~~Company with several benefits that are not available to non-shareholder correspondent banks. None of these restricted securities are traded on the open market and can only be redeemed by the respective issuer.

At ~~September~~June 30, ~~2017,~~2020, the unrestricted securities portfolio totaled ~~$71.0~~$102.8 million. The following table summarizes the Company's available for sale securities by type as of ~~September~~June 30, ~~2017,~~2020, December 31, ~~2016,~~2019, and ~~September~~June 30, ~~2016~~2019 (dollars in thousands):

	September 30, 2017				December 31, 2016				September 30, 2016				June 30, 2020					December 31, 2019					June 30, 2019
			Percent				Percent				Percent				Percent					Percent					Percent
	Balance		of Total		Balance		of Total		Balance		of Total		Balance		of Total			Balance		of Total			Balance		of Total
U.S.Government agencies	$	19,166	27.0	%	$	14,501	25.6	%	$	14,955	21.2	%
U.S. Government agencies													$	9,037		8.8	%	$	14,952		13.1	%	$	19,461		34.2	%
Corporate bonds		-	0.0	%		2,010	3.5	%		6,126	8.7	%		—		—			7,469		6.5	%		—		—
Mortgage-backed securities/CMOs		31,624	44.5	%		24,982	44.1	%		31,497	44.7	%		58,402		56.8	%		71,732		63.0	%		26,465		46.6	%
Municipal bonds		20,259	28.5	%		15,169	26.8	%		17,869	25.4	%		35,333		34.4	%		19,888		17.4	%		10,922		19.2	%
Total available for sale securities	$	71,049	100.0	%	$	56,662	100.0	%	$	70,447	100.0	%	$	102,772		100.0	%	$	114,041		100.0	%	$	56,848		100.0	%

The securities are held primarily for earnings, liquidity, and asset/liability management purposes and are reviewed quarterly for possible other-than-temporary impairments. During this review, management analyzes the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer, and the Company’s intent and ability to hold the security to recovery or maturity. These factors are analyzed for each individual security.

Loan portfolio

A management objective is to grow loan balances while maintaining the asset quality of the loan portfolio. The Company seeks to achieve this objective by maintaining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of, and the designation of lending limits for, each borrower. The portfolio strategies include seeking industry, loan size, and loan type 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, ~~Orange County, Harrisonburg,~~ Winchester, Frederick County, Richmond and areas in the Commonwealth of Virginia that are within a 75 mile radius of any Virginia National Bank office.

As of ~~September~~June 30, ~~2017,~~2020, total loans were ~~$501.0~~$632.4 million, compared to ~~the balance of $482.1~~$539.5 million as of December 31, ~~2016~~2019 and ~~$430.9~~$521.8 million at ~~September~~June 30, ~~2016.~~2019. Loans as a percentage of total assets at ~~September~~June 30, ~~2017~~2020 were ~~82.1%~~79.1%, compared to ~~75.7%~~82.3% as of ~~September~~June 30, ~~2016.~~2019. Loans as a percentage of deposits at ~~September~~June 30, ~~2017~~2020 were ~~98.8%~~88.5%, compared to ~~87.0%~~94.3% as of ~~September~~June 30, ~~2016.~~2019.

The following table summarizes the Company's loan portfolio by type of loan as of ~~September~~June 30, ~~2017,~~2020, December 31, ~~2016,~~2019, and ~~September~~June 30, ~~2016~~2019 (dollars in thousands):

	September 30, 2017				December 31, 2016				September 30, 2016
			Percent				Percent				Percent		June 30, 2020					December 31, 2019					June 30, 2019
	Balance		of Total		Balance		of Total		Balance		of Total		Balance		Percent of Total			Balance		Percent of Total			Balance		Percent of Total
Commercial and industrial	$	82,214	16.4	%	$	66,217	13.7	%	$	60,884	14.1	%	$	162,036		25.6	%	$	80,588		14.9	%	$	86,610		16.6	%
Real estate - commercial		217,599	43.4	%		221,410	45.9	%		203,670	47.3	%		259,369		41.0	%		250,579		46.4	%		245,906		47.1	%
Real estate - residential mortgage		92,470	18.5	%		90,225	18.7	%		87,330	20.3	%		121,102		19.2	%		120,657		22.4	%		96,472		18.5	%
Real estate - construction		25,147	5.0	%		15,682	3.3	%		19,628	4.5	%		26,500		4.2	%		17,140		3.2	%		14,320		2.8	%
Consumer loans		83,594	16.7	%		88,601	18.4	%		59,377	13.8	%		63,387		10.0	%		70,569		13.1	%		78,455		15.0	%
Total loans	$	501,024	100.0	%	$	482,135	100.0	%	$	430,889	100.0	%	$	632,394		100.0	%	$	539,533		100.0	%	$	521,763		100.0	%

~~From the $430.9 million outstanding at September 30, 2016, gross loans have~~Loan balances increased ~~$70.1~~$92.9 million, or ~~16.3%. Over~~17.2%, since December 31, 2019 and increased $110.6 million, or 21.2%, from June 30, 2019. The primary reason for the ~~one-year period,~~increase since year-end was the ~~significant loan growth was attributable to approximately $30.6~~origination of $86.9 million in ~~net organic loan growth, supplemented by purchases of~~SBA PPP loans.

The purchase of loans is considered a secondary strategy, which allows the Company to supplement organic loan ~~growth and enhance earnings.~~ growth. Purchased loans with balances outstanding of ~~$91.4~~$108.2 million as of ~~September~~June 30, ~~2017~~2020 were comprised of:

●

•

Student loans totaling ~~$51.4~~$40.7 million. The Company purchased two student loan packages in ~~2015. In~~2015 and a third in the fourth quarter of ~~2016, a third~~2016. A fourth tranche was closed ~~for an additional $24.8 million, inclusive of premium.~~in December 2017. Along with the purchase of these ~~three~~four packages of student loans, the Company purchased surety bonds ~~that~~to fully insure this portion of the Company’s consumer portfolio.
However, during June 2018, ReliaMax Surety, the insurance company which issued the surety bonds, was placed into liquidation due to insolvency. Loss claims were filed for loans in default as of July 27, 2018, when the surety bonds were terminated, and the Company received payment in the fourth quarter of 2019 on the balance of the claims approved by the liquidator. The liquidator has notified the Company that it will be making distributions related to unearned premiums. The Company expects to receive approximately $800 thousand from this distribution. Student loans continue to be profitable for the Company.

●

•

Loans guaranteed by a U.S. government agency (“government guaranteed”) totaling ~~$22.7~~$34.0 million, inclusive of premium. During the fourth quarter of 2016, the Company began augmenting the commercial and industrial portfolio with government guaranteed loans which represent the portion of loans that are 100% guaranteed by either the United States Department of Agriculture (“USDA”) or the Small Business Administration (“SBA”); the originating institution holds the unguaranteed portion of ~~the~~each loan and services it. These government guaranteed portion of loans are typically purchased at a premium. In the event of early prepayment, the Company may need to write off any unamortized premium.


●	•	Mortgage loans totaling $27.1 million, inclusive of premium. In each of the fourth quarters of 2019 and 2018, the Company purchased a package of 1-to-4 family residential mortgages. Each of the adjustable rate loans purchased were individually underwritten by the Company prior to the closing of the purchases. The collateral on these loans is located primarily on the East Coast of the United States.

•

Syndicated loans totaling ~~$17.3~~$6.4 million. Syndicated loans represent shared national credits in leveraged lending transactions and are included in the commercial and industrial portfolio. The Company has developed policies to limit overall credit exposure to the syndicated market, as well as limits by industry and amount per borrower. Management proactively manages shared national credits and has opportunistically increased or decreased exposure over time. In the third quarter of 2019, we elected to sell our interest in a credit which significantly lowered our allowance for loan losses and allowed for a recovery of loan loss provision.

Management will continue to evaluate loan purchase transactions ~~as needed~~ to strengthen earnings, diversity the loan portfolio and supplement organic loan ~~growth, as part~~growth.

Loan quality

Non-accrual loans totaled $11 thousand at June 30, 2020, compared to the $299 thousand and $390 thousand reported at December 31, 2019 and June 30, 2019, respectively. The December 31, 2019 non-accrual balance included a loan which was foreclosed upon during the second quarter of ~~its strategy~~2020, with the Company being made whole on the loan with the proceeds from a third-party bidder without the Company’s taking title to ~~strengthen earnings and attain an effective mix~~the property. The June 30, 2019 non-accrual balance included $363 thousand of ~~earning assets.~~

~~While the increase in~~student loan balances ~~slowed to a modest $18.9 million during the first three quarters of 2017, compared to December 31, 2016,~~for which the Company ~~experienced significant loan growth~~has received payment from the liquidation process in the fourth quarter of 2016 and each of the five quarters ending December 31, 2015. The positive impact to earnings from that significant loan growth has been realized in the first nine months of 2017 and should continue throughout the remainder of the year.

~~Loan quality~~2019.

Non-accrual loans remained low and totaled $186 thousand at September 30, 2017, compared to the $167 thousand and $173 thousand reported at December 31, 2016 and September 30, 2016, respectively. At September 30, 2017, theThe Company had loans in its portfolio totaling ~~$342~~$1.1 million, $771 thousand and $617 thousand, as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively, that were ninety or more days past due, ~~which were~~with all such loans still accruing interest as the Company ~~deems~~deemed them to be collectible. Each of these balances includes a government guaranteed loan of approximately $548 thousand. The past due balance as of June 30, 2020 included one mortgage loan of $437 thousand covered by a formal forbearance agreement. As of June 30, 2020, a total of seven loans were 90 days or more past due and still accruing interest, of which five were student loans totaling $92 thousand.

At ~~September~~June 30, ~~2017,~~2020, the Company had loans classified as impaired loans in the amount of $2.1 million, compared to $2.5 million ~~classified as impaired loans, of which $2.3 million were Troubled Debt Restructurings (TDRs) that are still accruing interest. At~~at December 31, ~~2016~~2019 and ~~September~~$2.6 million at June 30, ~~2016, the Company had loans in the amount of $2.4 million classified as impaired loans, of which $2.3 million were Troubled Debt Restructurings (TDRs) that are still accruing interest.~~2019. Based on regulatory guidance on Student Lending, ~~issued in May, 2016,~~ the Company has classified 6172 of its purchased student loans as TDRs for a total of ~~$937 thousand~~$1.1 million as of ~~September~~June 30, ~~2017.~~2020. 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 restructurings. Student loan borrowers are allowed in-school deferments, plus an automatic six-month grace period post in-school status, before repayment is scheduled to begin, and these deferments do not count toward the maximum allowable forbearance. ~~As all student loans purchased are fully insured, the Company does not expect to experience a loss on~~Management has evaluated these loans individually for impairment and included any probable loss in the allowance for loan loss; interest continues to accrue on these TDRs during any deferment and forbearance periods.

Management identifies potential problem loans through its periodic loan review process and considers potential problem loans as those loans classified as special mention, substandard, or doubtful.

Allowance for loan losses

In general, the Company determines the adequacy of its allowance for loan losses by considering the risk classification and delinquency status of loans and other factors. Management may also establish specific allowances for loans which management believes require allowances greater than those allocated according to their risk classification. The purpose of the allowance is to provide for losses inherent in the loan portfolio. Since risks to the loan portfolio include general economic trends as well as conditions affecting individual borrowers, the allowance is an estimate. The Company is committed to determining, on an ongoing basis, the adequacy of its allowance for loan losses. The Company applies historical loss rates to various pools of loans based on risk rating classifications. In addition, the adequacy of the allowance is further evaluated by applying estimates of loss that could be attributable to any one of the following eight qualitative factors:

●	~~National~~ 1)	Changes in national and local economic ~~trends;~~

●	~~Underlying collateral values;~~

●	~~Loan delinquency status and trends;~~
	conditions, including the condition of various market segments, which deteriorated in the first six months of 2020;

●	~~Loan risk classifications;~~

●	~~Industry concentrations;~~

●	~~Lending policies;~~2)	Changes in the value of underlying collateral;

Changes in volume of classified assets, measured as a percentage of capital;

●

~~Experience,~~

Changes in volume of delinquent loans;

The existence and effect of any concentrations of credit and changes in the level of such concentrations;

Changes in lending policies and procedures, including underwriting standards;

Changes in the experience, ability and depth of lending management and staff; and


●	~~Levels~~8)	Changes in the level of policy ~~exceptions~~exceptions.

As discussed earlier, the Company utilizes a loss migration model. Migration analysis uses loan level attributes to track the movement of loans through various risk classifications in order to estimate the percentage of losses likely in the portfolio.

The relationship of the allowance for loan losses to total loans ~~at September 30, 2017, December 31, 2016, and September 30, 2016~~ appears below (dollars in thousands):

	September 30,			December 31,			September 30,
	2017			2016			2016			June 30, 2020			December 31, 2019			June 30, 2019
Loans held for investment at period-end	$	501,024		$	482,135		$	430,889		$	632,394		$	539,533		$	521,763
Allowance for loan losses	$	3,824		$	3,688		$	3,278		$	4,917		$	4,209		$	4,817
Allowance as a percent of period-end loans		0.76	%		0.77	%		0.76	%		0.78	%		0.78	%		0.92	%

~~A provision~~The Allowance for Loan Losses as a percentage of assets was 0.78% as of June 30, 2020 and December 31, 2019, compared to 0.92% as of June 30, 2019. The percentage remained flat as compared to year-end, as the increase in the necessary allowance on most of the Company’s loans due to worsening economic qualitative factors was offset by the SBA-guaranteed PPP loans not needing an allowance. Note that the allowance for loan losses as a percentage of total loans, excluding PPP loans, was 0.90% as of June 30, 2020. The decline in the recorded percentage compared to the same quarter in the prior year was primarily due to a shared national credit with a higher loan loss allowance, which was later sold in the third quarter of 2019, and the impact of the PPP loans.

Provisions for loan losses totaling ~~$213~~$1.1 million and $620 thousand ~~was~~were recorded in the ~~first nine~~six months ~~of 2017, while a recovery of $291 thousand was recognized for the first nine months of 2016.~~ended June 30, 2020 and 2019, respectively. The following is a summary of the changes in the allowance for loan losses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016~~2019 (dollars in thousands):

	2017			2016			2020			2019
Allowance for loan losses, January 1	$	3,688		$	3,567		$	4,209		$	4,891
Charge-offs		(111	)		(36	)		(581	)		(823	)
Recoveries		34			38			146			129
Provision for (recovery of) loan losses		213			(291	)
Allowance for loan losses, September 30	$	3,824		$	3,278
Provision for loan losses								1,143			620
Allowance for loan losses, June 30							$	4,917		$	4,817

For additional insight into management’s approach and methodology in estimating the allowance for loan losses, please refer to the earlier discussion of “Allowance for Loan Losses” in Note 4 of the Notes to Consolidated Financial Statements. In addition, Note 4 includes details regarding the rollforward of the allowance by loan portfolio segments. The rollforward tables indicate the activity for loans that are charged-off, amounts received from borrowers as recoveries of previously charged-off loan balances, and the allocation by loan portfolio segment of the provision made during the period. The events that can positively impact the amount of allowance in a given loan segment include any one or all of the following: the recovery of a previously charged-off loan balance; the decline in the amount of classified or delinquent loans in a loan segment from the previous period, which most commonly occurs when these loans are repaid or are foreclosed; or when there are improvements in the ratios used to estimate the probability of loan losses. Improvements to the ratios could include lower historical loss rates, improvements to any of the qualitative factors mentioned above, or reduced loss expectations for individually-classified loans.

Management reviews the Allowance for Loan Losses on a quarterly basis to ensure it is adequate based upon the calculated ~~potential~~probable losses inherent in the portfolio. Management believes the allowance for loan losses was adequately provided for as of ~~September~~June 30, ~~2017.~~2020 and acknowledges that the allowance for loan losses may increase throughout the year as economic conditions may continue to deteriorate for the foreseeable future.

Premises and equipment

The Company’s premises and equipment, net of depreciation, as of ~~September~~June 30, ~~2017~~2020 totaled ~~$7.4~~$5.7 million compared to ~~the $8.0 million and $8.2~~$6.1 million as of December 31, ~~2016~~2019 and ~~September~~$6.6 million as of June 30, ~~2016, respectively.~~2019. 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. Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon disposition, assets and related accumulated depreciation are removed from the books, and any resulting gain or loss is charged to income.

As of ~~September~~June 30, ~~2017,~~2020, the Company ~~and its subsidiaries~~ occupied ~~six~~five full-service banking facilities in the cities of Charlottesville and Winchester, as well as the ~~counties~~county of Albemarle ~~and Orange~~ in Virginia. The ~~Company’s~~Company also operates a drive-through location at 301 East Water Street, Charlottesville, Virginia. The Company entered into a lease for branch and office space in Richmond, Virginia during the ~~Loudoun Mall banking~~first quarter of 2020 and anticipates opening the office ~~located at 186 North Loudoun Street, Winchester, Virginia expired, and the Company permanently closed that office on October 28, 2016.~~ by year-end absent delays as a result of COVID-19.

The ~~Company is continuing to search for at least one new branch office location in Winchester. Any new offices that the Company decides to add are expected to be small commercial spaces.~~

~~The multi-story~~five-story office building at 404 People Place, Charlottesville, Virginia, located in Albemarle County, also serves as the Company’s corporate headquarters and operations center, as well as the principal offices of both Masonry Capital and Sturman Wealth Advisors. VNB ~~Wealth.~~Trust & Estate Services is located at 112 Third Street, SE, Charlottesville, Virginia, which is part of the same leased space that the Company uses to operate the drive-through location at 301 East Water Street, Charlottesville, Virginia.

Both the Arlington Boulevard facility in Charlottesville and the People Place facility also contain office space that is currently under lease to tenants.

Leases

As of June 30, 2020, $3.9 million of right-of-use assets and $4.0 million of lease liabilities are included in Other Assets and Other Liabilities, respectively, in accordance with the Company’s implementation of ASU 2016-02 “Leases” (Topic 842) in the first quarter of 2019 and subsequent leasing activities. This implementation required the Company to recognize right-of-use assets, which are assets that represent the Company’s right to use, or control the use of, a specified asset for the lease term, offset by the lease liability, which is the Company’s obligation to make lease payments arising from a lease, measured on a discounted basis.

Deposits

Depository accounts represent the Company’s primary source of funds and are comprised of demand deposits, interest-bearing checking, ~~accounts,~~ money market, ~~deposit~~and savings accounts ~~and~~as well as time deposits. These deposits have been provided predominantly by individuals, businesses and charitable organizations in the Charlottesville/Albemarle, ~~area, the Orange County area,~~Richmond and ~~the~~ Winchester ~~area.~~areas.

Total deposits as of ~~September~~June 30, ~~2017~~2020 were ~~$507.3~~$714.2 million, ~~down $17.4~~an increase of $93.0 million compared to the balances of ~~$524.7~~$621.2 million at December 31, ~~2016~~2019, and ~~up $12.1~~an increase of $160.7 million compared to the ~~$495.2~~$553.5 million total as of ~~September~~June 30, ~~2016.~~2019. The ~~year-over-year~~primary reason for the increase ~~was realized predominately~~since year-end is due to increased balances in ~~money market~~PPP customer accounts.

Deposit accounts
(dollars in thousands)	June 30, 2020					December 31, 2019					June 30, 2019
	Balance		% of Total Deposits			Balance		% of Total Deposits			Balance		% of Total Deposits
No cost and low cost deposits:
Noninterest demand deposits	$	197,227		27.6	%	$	166,975		26.9	%	$	158,166		28.6	%
Interest checking accounts		136,274		19.1	%		122,994		19.8	%		97,620		17.6	%
Money market and savings deposit accounts		284,101		39.8	%		221,964		35.7	%		175,740		31.8	%

Total noninterest and low cost deposit accounts		617,602		86.5	%		511,933		82.4	%		431,526		78.0	%

Time deposit accounts:
Certificates of deposit		88,071		12.3	%		95,621		15.4	%		96,925		17.5	%
CDARS deposits		8,528		1.2	%		13,657		2.2	%		25,068		4.5	%
Total certificates of deposit and other time deposits		96,599		13.5	%		109,278		17.6	%		121,993		22.0	%

Total deposit account balances	$	714,201		100.0	%	$	621,211		100.0	%	$	553,519		100.0	%

Deposit accounts

(dollars in thousands) September 30, 2017 December 31, 2016 September 30, 2016
      Balance       % of Total
Deposits       Balance       % of Total
Deposits       Balance       % of Total
Deposits
No cost and low cost deposits:
Noninterest demand deposits $      166,544 32.8 % $      176,098 33.5 % $      176,063 35.6 %
Interest checking accounts 98,528 19.4 % 96,869 18.5 % 91,808 18.5 %
Money market deposit accounts 128,149 25.3 % 136,658 26.0 % 114,903 23.2 %
Total noninterest and low cost deposit accounts 393,221 77.5 % 409,625 78.0 % 382,774 77.3 %

Time deposit accounts:
Certificates of deposit 97,273 19.2 % 90,084 17.2 % 94,469 19.1 %
CDARS deposits 16,776 3.3 % 24,942 4.8 % 17,936 3.6 %
Total certificates of deposit and other time deposits 114,049 22.5 % 115,026 22.0 % 112,405 22.7 %

Total deposit account balances $ 507,270        100.0 % $ 524,651      100.0 % $ 495,179      100.0 %

Noninterest-bearing demand deposits on ~~September~~June 30, ~~2017~~2020 were ~~$166.5~~$197.2 million, representing ~~32.8%~~27.6% of total deposits. Interest-bearing transaction, ~~and~~ money market, and savings accounts totaled ~~$226.7~~$420.4 million, and represented ~~44.7%~~58.9% of total deposits at ~~September~~June 30, ~~2017.~~2020. Collectively, noninterest-bearing and interest-bearing transaction and money market accounts represented ~~77.5%~~86.5% of total deposit accounts at ~~September~~June 30, ~~2017.~~2020. These account types are an excellent source of low-cost funding for the Company.

The Company also offers an insured cash sweep (“ICS^®”) deposit products. ICS^® deposit balances of $30.6 million and $68.7 million are included in the interest checking accounts and the money market and savings deposit accounts

balances, respectively, in the table above, as of June 30, 2020. As of December 31, 2019, ICS^® deposit balances of $19.3 million and $53.6 million are included in the interest checking accounts and the money market and savings deposit account balances, respectively. All ICS accounts consist of reciprocal balances for the Company’s customers.

The remaining ~~22.5%~~13.5% of total deposits consisted of certificates of deposit and other time deposit accounts totaling ~~$114.0~~$96.6 million at ~~September~~June 30, ~~2017.~~2020. Included in this deposit total are Certificate of Deposit Account Registry Service CDs, known as CDARS^TM, whereby depositors can obtain FDIC deposit insurance on account balances of up to $50 million. CDARS^TM deposits totaled ~~$16.8~~$8.5 million as of ~~September~~June 30, ~~2017.~~2020, all of which were reciprocal balances for the Company’s customers.

~~Repurchase agreements and other borrowings~~Borrowings

Short-term borrowings, consisting primarily of ~~FHLB Advances, repurchase agreements,~~Federal Home Loan Bank (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.

~~During~~The Company has a collateral dependent line of credit with the ~~third quarter~~FHLB of ~~2017,~~Atlanta. As of June 30, 2020, December 31, 2019, and June 30, 2019, the Company ~~borrowed $25 million~~had no outstanding balances from FHLB advances.

Additional borrowing arrangements maintained by the ~~FHLB, which remained outstanding as of September 30, 2017.~~Company include formal federal funds lines with four major regional correspondent banks and the Federal Reserve discount window. The Company had no outstanding ~~borrowings from the FHLB~~balances on these lines or facilities as of June 30, 2020, December 31, ~~2016~~2019 or ~~September~~June 30, ~~2016. Average borrowings from the FHLB were $8.2 million during the third quarter of 2017.~~2019.

Repurchase agreements, also referred to as securities sold under agreement to repurchase, are available to non-individual accountholders on an overnight term through the Company’s investment sweep product. Under the agreements to repurchase, invested funds are fully collateralized by security instruments that are pledged on behalf of customers utilizing this product. Total balances in repurchase agreements as of September 30, 2017 were $12.0 million, compared to $19.7 million and $13.5 million as of December 31, 2016 and September 30, 2016.

The Company had no balances in borrowed overnight federal funds as of September 30, 2017, yet averaged $702 thousand for the third quarter of the year. The Company had no balances in federal funds purchased as of December 31, 2016 or September 30, 2016.

Shareholders' equity and regulatory capital ratios

The following table displays the changes in shareholders' equity for the Company from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017~~2020 (dollars in thousands):

Equity, December 31, 2016	$	59,054
Equity, December 31, 2019				$	76,107
Net income		5,400			3,492
Other comprehensive income		483			1,006
Cash dividends declared		(1,077	)		(1,625	)
Stock options exercised		981
Equity increase due to expensing of restricted stock					54
Equity increase due to expensing of stock options		8			58
Equity, September 30, 2017	$	64,849
Equity, June 30, 2020				$	79,092

~~The~~For the calendar year 2019 and beyond, the 2.5% capital conservation buffer, which was phased in over a four year period under Basel III regulatory capital rules, effective January 1, 2015 required the Company and its subsidiaries to comply with the following new minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.50% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6% of risk-weighted assets (increased from the prior requirement of 4.00%); (iii) a total capital ratio of 8.00% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.00% of total assets (unchanged from the prior requirement). These were the initial capital requirements.

Beginning January 1, 2016 a capital conservation buffer requirement began to be phased in over a four-year period, beginning at 0.625% of risk-weighted assets and increasing annually to 2.50% at January 1, 2019. Therefore, for the calendar year 2017, this 1.25% buffer effectively results in the minimum (i) common equity Tier 1 capital ratio of ~~5.75%~~7.00% of risk-weighted assets; (ii) Tier 1 capital ratio of ~~7.25%~~8.50% of risk-weighted assets; and (iii) total capital ratio of ~~9.25%~~10.50% of risk-weighted assets. The minimum leverage ratio remains at 4.00%. For additional information regarding the new capital requirements, refer to the Supervision and Regulation section, under Item 1. Business, found in the Company’s 2019 Form ~~10-K Report for December 31, 2016.~~10-K.

Using the ~~new~~current capital requirements, the Company’s capital ratios remain well above the levels designated by bank regulators as "well capitalized" at ~~September~~June 30, ~~2017. Under the current risk-based capital guidelines of federal regulatory authorities, the~~2020. The Company’s common equity Tier 1 capital ratio and Tier 1 capital ratio are both at ~~12.75%~~14.63% of its risk-weighted assets and are ~~well~~ in excess of the well-capitalized minimum capital requirements of 6.50% and 8.00%, respectively. Additionally, the Company has a total capital ratio of ~~13.51%~~15.56% of its risk-weighted assets and leverage ratio of ~~10.30%~~9.84% of total assets, which are both ~~well~~ in excess of the well-capitalized minimum 10.00% and 5.00% ~~level~~levels, respectively, designated by bank regulators under “well capitalized” capital guidelines.

On September 17, 2019 the Federal Deposit Insurance Corporation finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations, referred to as, the community bank leverage ratio (CBLR) framework, as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. 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 percent, 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 Prompt Corrective Action 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 decided not to opt into the CBLR framework.

RESULTS OF OPERATIONS

Non-GAAP presentations

The Company, in referring to its net income and net interest income, is referring to income computed in accordance with GAAP, unless otherwise noted. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations also refer to various calculations that are non-GAAP presentations. They include:

●

•

Fully taxable-equivalent (“FTE”) adjustments–Net interest margin and efficiency ratios are presented on an FTE basis, consistent with SEC guidance in Industry Guide 3 which states that tax exempt income may be calculated on a tax equivalent basis. This is a non-GAAP presentation. The FTE basis adjusts for the ~~tax-exemptstatus~~tax-exempt status of net interest income from certain investments using a federal tax rate of ~~34%~~21%, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis.


● •	Net interest margin–Net interest margin (FTE) is calculated as net interest income, computed on an FTE basis, expressed as a percentage of average earning assets. The Company believes this measure to be the preferred industry measurement of net interest margin and that it enhances comparability of net interest margin among peers in the industry.

●

•

Efficiency ratio –One of the ratios the Company monitors in its evaluation of operations is the efficiency ratio, which measures the cost to produce one dollar of revenue. The Company computes its efficiency ratio (FTE) by dividing noninterest expense by the sum of net interest income (FTE) and noninterest income. A lower ratio is an indicator of increased operational efficiency. This non-GAAP metric is used to assist investors in understanding how management assesses its ability to generate revenues from its non-funding-related expense base, as well as to align presentation of this financial measure with peers in the industry. The Company believes this measure to be the preferred industry measurement of operational efficiency, which is consistent with Federal Deposit Insurance Corporation (“FDIC”) studies.

Net interest income is discussed in Management’s Discussion and Analysis on a GAAP basis, unless noted as “FTE”; and the reconcilement below shows the fully taxable-equivalent adjustment to net interest income to aid the reader in understanding the computations of net interest margin and the efficiency ratio on a non-GAAP basis (dollars in thousands):

Reconcilement of Non-GAAP Measures For the three months ended For the nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net interest income $ 5,483 $ 4,537 $ 15,864 $ 13,481
Fully taxable-equivalent adjustment 40 40 104 124
Net interest income (FTE) $ 5,523 $ 4,577 $ 15,968 $ 13,605

Efficiency ratio 59.0 % 64.2 % 58.4 % 65.9 %
Impact of FTE adjustment -0.4 % -0.4 % -0.3 % -0.5 %
Efficiency ratio (FTE) 58.6 % 63.8 % 58.1 % 65.4 %

Net interest margin 3.67 % 3.38 % 3.56 % 3.46 %
Fully tax-equivalent adjustment 0.03 % 0.03 % 0.02 % 0.03 %
Net interest margin (FTE) 3.70 % 3.41 % 3.58 % 3.49 %

Reconcilement of Non-GAAP Measures:	For the three months ended						For the six months ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net interest income	$	5,755		$	5,461		$	11,130		$	11,029
Fully taxable-equivalent adjustment		25			20			45			42
Net interest income (FTE)	$	5,780		$	5,481		$	11,175		$	11,071

Efficiency ratio		59.7	%		65.4	%		62.0	%		66.0	%
Impact of FTE adjustment		-0.2	%		-0.2	%		-0.2	%		-0.2	%
Efficiency ratio (FTE)		59.5	%		65.2	%		61.8	%		65.8	%

Net interest margin		3.11	%		3.65	%		3.14	%		3.71	%
Fully tax-equivalent adjustment		0.01	%		0.02	%		0.02	%		0.01	%
Net interest margin (FTE)		3.12	%		3.67	%		3.16	%		3.72	%

Net income

Net income for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~$1.7~~$2.1 million, a ~~25.0% increase~~$27 thousand or 1.3% decrease compared to ~~the $1.4 million~~net income reported for the three months ended ~~September~~June 30, ~~2016.~~2019. Net income per diluted share was ~~$0.72~~$0.77 for the quarter ended ~~September~~June 30, ~~2017~~2020 compared to ~~$0.59~~$0.79 per diluted share for the same quarter in the prior ~~year.~~year, as adjusted to reflect the 5% Stock Dividend issued in July 2019. The ~~$349 thousand increase~~decrease in net income for the ~~third quarter of 2017,~~three months ended June 30, 2020, when compared to the same period of ~~2016,~~2019, was ~~driven by an~~attributable to the combination of: i) a $442 thousand increase in provision for loan losses, largely as a result of worsening economic factors associated with the COVID-19 pandemic; ii) a $294 thousand increase in net interest income, primarily due to lower cost of ~~$946 thousand. Partially offsetting this improvement was~~funds; iii) a $74 thousand decrease in noninterest income, ~~of $255~~as explained in the Noninterest income section below; iv) a $281 thousand ~~and increases of $182 thousand~~decrease in noninterest expense, as explained in the Noninterest expense section below, and v) an $86 thousand increase in provision for income ~~taxes, $96 thousand in noninterest expenses, and $64 thousand in the provision for loan losses.~~taxes.

Net income for the ~~first nine~~six months ~~of 2017~~ended June 30, 2020 was ~~$5.4~~$3.5 million, a $131 thousand or ~~26.7% higher than the reported~~3.9% increase compared to net income ~~of $4.3 million during~~reported for the ~~same period in 2016.~~six months ended June 30, 2019. Net income per diluted share was $1.29 for the ~~first three quarters of 2017 was $2.24, or $0.45 higher than the $1.79~~six months ended June 30, 2020, compared to $1.25 per diluted share ~~reported~~for the same period in the ~~first three quarters of 2016.~~prior year, as adjusted to reflect the 5% Stock Dividend. The ~~$1.1 million~~ increase in net income ~~during~~for the first ~~nine months~~six month of ~~2017 from~~2020, when compared to the ~~first nine months of 2016~~same period in 2019, was attributable to anthe combination of: i) a $523 thousand increase in provision for loan losses largely as a result of ~~$2.4 million~~worsening economic factors associated with the COVID-19 pandemic; ii) a $101 thousand increase in net interest ~~income. Net~~ income, ~~was negatively impacted by an~~primarily due to lower cost of funds incurred in the second quarter of the current year; iii) a $536 thousand increase ~~of $609~~in noninterest income, as explained in the Noninterest income section below; iv) a $149 thousand decrease in noninterest expense, as explained in the Noninterest expense section below, and v) a $132 thousand increase in provision for income ~~taxes, an increase of $504 thousand in the provision for loan losses, an increase of $78 thousand in noninterest expense, and a decrease of $53 thousand in noninterest income.~~taxes.

Net interest income

Net interest income (FTE) for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~$5.5~~$5.8 million, a ~~$946~~$299 thousand or 5.5% increase compared to net interest income (FTE) of ~~$4.5~~$5.5 million for the three months ended ~~September~~June 30, ~~2016.~~2019. Net interest income (FTE) was positively impacted by the decrease in rates paid on deposit accounts, which decreased interest expense by $364 thousand, offset by the increased volume of deposits, which increased interest expense by $49 thousand. The increased volume of loans, increasing from an average of $524.4 million in the second quarter of 2019 to $618.1 million in the second quarter of 2020, positively impacted interest income by $1.0 million; however, the lower rate earned on loans, declining from 4.67% to 4.01% for the periods noted, negatively impacted interest income by $952 thousand, nearly offsetting the positive impact of the increase in ~~average earning assets of $58.1 million. Most of this growth was in higher yielding loans and resulted in average loans~~volume.

Net interest income (FTE) for the ~~third quarter of 2017 being $74.4 million higher than the average loans for the third quarter of 2016. For the nine~~six months ended ~~September~~June 30, ~~2017, the Company recorded $15.9~~2020 was $11.2 million, ina $104 thousand or 0.9% increase compared to net interest income ~~or 17.7% more than the $13.5~~(FTE) of $11.1 million ~~recorded~~ for the ~~same nine~~six months ~~a year ago.~~ended June 30, 2019. Net interest income (FTE) was positively impacted by the increase in the volume of the securities portfolio, which increased from an average of $62.9 million in the first six months of 2019 to $91.5 million in the first six months of 2020, increasing interest income by $292 thousand. The decline in rates paid on securities slightly offset the impact of the volume increase, declining from an average yield of 2.40% to 2.18% for the periods noted, impacting interest income negatively by $48 thousand. The increase in the volume of loans, up from an average of $528.9 million in the first six months of 2019 to $577.0 million in first six months of 2020, positively impacted interest income by $1.1 million; however, the lower rate earned on loans, declining from 4.65% to 4.19% for the periods noted, negatively impacted interest income by $1.2 million, offsetting the positive impact of the increase in volume.

Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets for the period. The level of interest rates, together with the volume and mix of earning assets and interest-bearing liabilities, impact net interest income (FTE) and net interest margin (FTE). The net interest margin (FTE) of ~~3.70%~~3.12% for the three months ended ~~September~~June 30, ~~2017~~2020 was 2955 basis points ~~higher~~lower than the ~~3.41%~~3.67% for the ~~quarter~~three months ended ~~September~~June 30, ~~2016.~~2019. The net interest margin (FTE) of 3.16% for the ~~first nine~~six months ~~of 2017~~ended June 30, 2020 was ~~3.58% or 12~~56 basis points ~~higher~~lower than the ~~3.46% reported~~3.72% for the ~~same period in 2016.~~six months ended June 30, 2019. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP presentations section for a reconcilement of GAAP to non-GAAP net interest margin.

~~Total interest income (FTE)~~Interest expense decreased $315 thousand for the ~~nine~~three months ended ~~September~~June 30, ~~2017 was $2.6 million higher than~~2020 compared to the same period in the prior year, ~~accounting~~due predominantly to rate decreases. The rate paid on interest-bearing deposits averaged 62 basis points in the three months ended June 30, 2020, compared to 106 basis points for the ~~year-to-date increase~~three months ended June 30, 2019. Average balances of interest-bearing deposits increased from $397.1 million in the three months ended June 30, 2019 to $487.3 million in the three months ended June 30, 2020. Average balances of borrowed funds, from fed funds sold,

decreased from $3.8 million in the three months ended June 30, 2019 to zero in the three months ended June 30, 2020, causing a decrease in interest expense on borrowed funds.

Interest expense decreased $33 thousand for the six months ended June 30, 2020, compared to the same period in the prior year, due predominantly to the lack of borrowing expense, as noted above. The increased volume of deposits increased interest expense by $206 thousand, while the decrease in rates paid on deposit accounts decreased interest expense by $150 thousand, netting to an overall impact of increasing net interest income (FTE). The increased loan volume was the major contributor to the increased interest income. This shift resulted in an earning asset yield, as computed on a tax-equivalent basis, of 3.79% on average earning assetby $56 thousand. Average balances of ~~$596.2~~borrowed funds, from fed funds sold, decreased from $6.9 million ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2017. The earning asset yield, as computed on a tax-equivalent basis, was 3.64% on average earning asset balances of $524.9 million for~~2019 to zero in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~

2020, causing a decrease in interest expense on borrowed funds. The ~~Company’s~~lack of borrowed funds during the first six months of 2020 had a positive impact on net interest income ~~continues to benefit from having one of the lowest cost of funds among community banks~~ in the ~~country.~~amount of $89 thousand. The rate paid on interest-bearing deposits averaged 83 basis points in the six months ended June 30, 2020, compared to 98 basis points for the six months ended June 30, 2019. Average balances of interest-bearing deposits increased from $388.6 million in the six months ended June 30, 2019 to $473.9 million in the six months ended June 30, 2020. A table showing the mix of no cost and ~~low cost~~low-cost deposit accounts is shown under “Financial Condition - Deposits” earlier in this report. ~~Interest expense as a percentage of average earning assets was 0.21% for the nine months ended September 30, 2017 and 0.18% for the nine months ended September 30, 2016.~~

The following tables detail the average balance sheet, including an analysis of net interest income (FTE) for earning assets and ~~interest bearing~~interest-bearing liabilities, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. These tables also include a rate/volume analysis for these same periods (dollars in thousands).

Consolidated Average Balance Sheet ~~And~~and Analysis of Net Interest Income

For the three months ended
September 30, 2017 September 30, 2016 Change in Interest Income/Expense
Average Interest Average Average Interest Average Change Due to:⁴ Total
    Balance     Income Yield/ Balance Income Yield/ Increase/
(dollars in thousands)     Expense     Cost         Expense     Cost     Volume     Rate     (Decrease)
ASSETS
Interest Earning Assets:
Securities
Taxable Securities $    71,208 $    351 1.97% $    59,087 $    260 1.76% $    57 $    34 $    91
Tax Exempt Securities¹ 13,557 118 3.48% 13,835 118 3.41% (2) 2 -
Total Securities¹ 84,765 469 2.21% 72,922 378 2.07% 55 36 91
Total Loans 496,983 5,348 4.27% 422,567 4,385 4.13% 796 167 963
Fed Funds Sold 9,698 30 1.23% 37,310 45 0.48% (50) 35 (15)
Other Interest Bearing Deposits 462 1 0.86% 1,000 3 1.19% (1) (1) (2)
Total Earning Assets 591,908 5,848 3.92% 533,799 4,811 3.59% 800 237 1,037
Less: Allowance for Loan Losses (3,721) (3,186)
Total Non-Earning Assets 36,502 37,321
Total Assets $ 624,689 $ 567,934

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking $ 95,542 $ 12 0.05% $ 93,390 $ 11 0.05% $ - $ 1 $ 1
Money Market Deposits 135,113 96 0.28% 109,535 57 0.21% 15 24 39
Time Deposits 122,586 179 0.58% 113,261 157 0.55% 13 9 22
Total Interest-Bearing Deposits 353,241 287 0.32% 316,186 225 0.28% 28 34 62
Short Term Borrowings 26,013 38 0.58% 16,992 9 0.21% 7 22 29
Total Interest-Bearing Liabilities 379,254 325 0.34% 333,178 234 0.28% 35 56 91
Non-Interest-Bearing Liabilities:
Demand deposits 179,964 173,745
Other liabilities 1,062 1,827
Total Liabilities 560,280 508,750
Shareholders' Equity 64,409 59,184
Total Liabilities & Shareholders' Equity $ 624,689 $ 567,934
Net Interest Income (FTE) $ 5,523 $ 4,577 $ 765 $ 181 $ 946
Interest Rate Spread² 3.58% 3.31%
Interest Expense as a Percentage of Average Earning Assets 0.22% 0.17%
Net Interest Margin (FTE)³ 3.70% 3.41%

	For the three months ended
	June 30, 2020								June 30, 2019								Change in Interest Income/ Expense
	Average			Interest		Average			Average			Interest		Average			Change Due to : ⁴						Total
	Balance			Income		Yield/Cost			Balance			Income		Yield/Cost			Volume			Rate			Increase/
(dollars in thousands)				Expense								Expense											(Decrease)
ASSETS
Interest Earning Assets:
Securities
Taxable Securities	$	53,953		$	253		1.88	%	$	49,814		$	277		2.22	%	$	22		$	(46	)	$	(24	)
Tax Exempt Securities ¹		14,793			117		3.16	%		12,715			96		3.02	%		16			5			21
Total Securities ¹		68,746			370		2.15	%		62,529			373		2.39	%		38			(41	)		(3	)
Total Loans		618,096			6,156		4.01	%		524,424			6,105		4.67	%		1,003			(952	)		51
Fed Funds Sold		57,920			10		0.07	%		12,885			74		2.30	%		62			(126	)		(64	)
Total Earning Assets		744,762			6,536		3.53	%		599,838			6,552		4.38	%		1,103			(1,119	)		(16	)
Less: Allowance for Loan Losses		(4,788	)							(4,951	)
Total Non-Earning Assets		46,543								44,452
Total Assets	$	786,517							$	639,339

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking	$	131,333		$	26		0.08	%	$	100,983		$	47		0.19	%	$	11		$	(32	)	$	(21	)
Money Market and Savings Deposits		257,174			365		0.57	%		169,128			416		0.99	%		166			(217	)		(51	)
Time Deposits		98,762			365		1.49	%		126,993			586		1.85	%		(117	)		(104	)		(221	)
Total Interest-Bearing Deposits		487,269			756		0.62	%		397,104			1,049		1.06	%		60			(353	)		(293	)
Other borrowed funds		—			—		—			3,800			22		2.32	%		(11	)		(11	)		(22	)
Total Interest-Bearing Liabilities		487,269			756		0.62	%		400,904			1,071		1.07	%		49			(364	)		(315	)
Non-Interest-Bearing Liabilities:
Demand deposits		216,747								159,425
Other liabilities		3,577								5,421
Total Liabilities		707,593								565,750
Shareholders' Equity		78,924								73,589
Total Liabilities & Shareholders' Equity	$	786,517							$	639,339
Net Interest Income (FTE)				$	5,780							$	5,481				$	1,054		$	(755	)	$	299
Interest Rate Spread ²							2.91	%							3.31	%
Interest Expense as a Percentage of Average Earning Assets							0.41	%							0.72	%
Net Interest Margin (FTE) ³							3.12	%							3.67	%

(1)

Tax-exempt income for investment securities has been adjusted to a fully tax-equivalent basis (FTE), using a Federal income tax rate of ~~34%~~21%. Refer to the Reconcilement of Non-GAAP ~~Measures~~Measured table within the Non-GAAP ~~presentations section for a reconcilement of GAAP to non-GAAP net interest income and net interest margin.~~Presentations earlier in this section.


(2)	Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.


(3)	Net interest margin (FTE) is net interest income expressed as a percentage of average earning assets.


(4)	The impact on the net interest income (FTE) resulting from changes in average balances and average rates is shown for the period indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Consolidated Average Balance Sheet ~~And~~and Analysis of Net Interest Income

For the nine months ended
September 30, 2017 September 30, 2016 Change in Interest Income/Expense
Average Interest Average Average Interest Average Change Due to:⁴ Total
    Balance     Income Yield/ Balance Income Yield/ Increase/
(dollars in thousands)         Expense     Cost         Expense     Cost     Volume     Rate     (Decrease)
ASSETS
Interest Earning Assets:
Securities
Taxable Securities $      63,884 $      907 1.89 % $      59,949 $      829 1.84 % $      55 $      23 $    78
Tax Exempt Securities⁽¹⁾ 12,167 307      3.36 % 14,371 366      3.40 % (56 ) (3 ) (59 )
Total Securities⁽¹⁾ 76,051 1,214 2.13 % 74,320 1,195 2.14 % (1 ) 20 19
Total Loans 489,375 15,454 4.22 % 421,156 13,012 4.13 % 2,149 293 2,442
Fed Funds Sold 29,951 208 0.93 % 28,246 101 0.48 % 6 101 107
Other Interest Bearing Deposits 819 7 1.14 % 1,132 7 0.83 % (2 ) 2 -
Total Earning Assets 596,196 16,883 3.79 % 524,854 14,315 3.64 % 2,152 416 2,568
Less: Allowance for Loan Losses (3,691 ) (3,387 )
Total Non-Earning Assets 36,964 37,471
Total Assets $ 629,469 $ 558,938

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking $ 98,854 $ 37 0.05 % $ 90,634 $ 34 0.05 % $ 3 $ - $ 3
Money Market Deposits 142,724 304 0.28 % 108,152 169 0.21 % 63 72 135
Time Deposits 126,895 516 0.54 % 114,161 474 0.55 % 52 (10 ) 42
Total Interest-Bearing Deposits 368,473 857 0.31 % 312,947 677 0.29 % 118 62 180
Short Term Borrowings 20,140 58 0.39 % 19,235 33 0.23 % 2 23 25
Total Interest-Bearing Liabilities 388,613 915 0.31 % 332,182 710 0.29 % 120 85 205
Non-Interest-Bearing Liabilities:
Demand deposits 177,142 167,387
Other liabilities 1,310 1,583
Total Liabilities 567,065 501,152
Shareholders' Equity 62,404 57,786
Total Liabilities & Shareholders' Equity $ 629,469 $ 558,938
Net Interest Income (FTE) $ 15,968 $ 13,605 $ 2,032 $ 331 $ 2,363
Interest Rate Spread⁽²⁾ 3.48 % 3.35 %
Interest Expense as a Percentage of Average Earning Assets 0.21 % 0.18 %
Net Interest Margin (FTE)³ 3.58 % 3.46 %

	For the six months ended
	June 30, 2020								June 30, 2019								Change in Interest Income/ Expense
	Average			Interest		Average			Average			Interest		Average			Change Due to : ⁴						Total
	Balance			Income		Yield/Cost			Balance			Income		Yield/Cost			Volume			Rate			Increase/
(dollars in thousands)				Expense								Expense											(Decrease)
ASSETS
Interest Earning Assets:
Securities
Taxable Securities	$	78,370		$	786		2.01	%	$	50,046		$	555		2.22	%	$	288		$	(57	)	$	231
Tax Exempt Securities ⁽¹⁾		13,109			212		3.23	%		12,824			199		3.10	%		4			9			13
Total Securities ⁽¹⁾		91,479			998		2.18	%		62,870			754		2.40	%		292			(48	)		244
Total Loans		576,952			12,027		4.19	%		528,854			12,202		4.65	%		1,058			(1,233	)		(175	)
Fed Funds Sold		43,409			95		0.44	%		8,077			93		2.32	%		129			(127	)		2
Total Earning Assets		711,840			13,120		3.71	%		599,801			13,049		4.39	%		1,479			(1,408	)		71
Less: Allowance for Loan Losses		(4,523	)							(4,928	)
Total Non-Earning Assets		45,650								42,074
Total Assets	$	752,967							$	636,947

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest Checking	$	127,026		$	57		0.09	%	$	101,944		$	96		0.19	%	$	20		$	(59	)	$	(39	)
Money Market and Savings Deposits		243,036			1,029		0.85	%		165,339			748		0.91	%		332			(51	)		281
Time Deposits		103,851			859		1.66	%		121,327			1,045		1.74	%		(146	)		(40	)		(186	)
Total Interest-Bearing Deposits		473,913			1,945		0.83	%		388,610			1,889		0.98	%		206			(150	)		56
Other borrowed funds		—			—		0.00	%		6,908			89		2.60	%		(45	)		(44	)		(89	)
Total Interest-Bearing Liabilities		473,913			1,945		0.83	%		395,518			1,978		1.01	%		161			(194	)		(33	)
Non-Interest-Bearing Liabilities:
Demand deposits		197,312								165,322
Other liabilities		3,507								3,337
Total Liabilities		674,732								564,177
Shareholders' Equity		78,235								72,770
Total Liabilities & Shareholders' Equity	$	752,967							$	636,947
Net Interest Income (FTE)				$	11,175							$	11,071				$	1,318		$	(1,214	)	$	104
Interest Rate Spread ⁽²⁾							2.88	%							3.37	%
Interest Expense as a Percentage of Average Earning Assets							0.55	%							0.67	%
Net Interest Margin (FTE) ³							3.16	%							3.72	%

(1)


(2)	Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.


(3)	Net interest margin (FTE) is net interest income expressed as a percentage of average earning assets.


(4)	The impact on the net interest income (FTE) resulting from changes in average balances and average rates is shown for the period indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Provision for loan losses

A provision for loan losses of ~~$168~~$378 thousand was ~~recorded~~recognized in the ~~third~~second quarter of ~~2017, compared to a~~2020 primarily driven by further deterioration in the economic outlook resulting from the impact of COVID-19. A recovery of loan loss provision of $64 thousand was recognized in the second quarter of 2019. A provision for loan losses of ~~$104 thousand for the same quarter in 2016. On a year-to-date basis, a provision for loan losses of $213 thousand was recorded in 2017, while a recovery of $291 thousand~~$1.1 million was recognized ~~for~~in the first ~~three quarters~~six months of ~~2016. This resulted~~2020, compared to $620 thousand recognized in ~~a negative impact to income~~the first six months of ~~$504 thousand when comparing year-over-year. The 2017 provision for loan losses~~2019, and such increase was ~~recorded~~also primarily due to ~~loan growth during~~ the ~~first nine months~~deterioration in the economic outlook resulting from the impact of ~~the year and to replenish the allowance for losses due to net charge-offs of $77 thousand during the period.~~ COVID-19.

The period-end allowance for loan losses as a percentage of total loans ~~at September~~was 0.78% as of June 30, ~~2017~~2020 and December 31, 2019, compared to 0.92% as of ~~0.76%~~June 30, 2019. The percentage remained flat as compared to year-end, as the increase in the necessary allowance on most of the Company’s loans due to worsening economic qualitative factors was ~~level~~offset by the SBA-guaranteed PPP loans not needing an allowance. Note that the allowance for loan losses as a percentage of total loans, excluding PPP loans, would have been 0.90% as of June 30, 2020. The decline in the percentage from the second quarter of 2019 to year-end 2019 was related to the sale of a shared national credit with ~~September 30, 2016. As discussed earlier, the Company utilizes~~ a higher loan loss ~~migration model.~~ allowance.

Further discussion of management’s assessment of the allowance for loan losses is provided earlier in the report and in Note 4 – Allowance for Loan Losses, found in the Notes to the Consolidated Financial Statements. In management’s opinion, the allowance was adequately provided for at ~~September~~June 30, ~~2017.~~2020. While we have not experienced any charge-offs related to COVID-19, our ALLL calculation, provision for loan losses, asset quality and collateral values may be significantly impacted by deterioration in economic conditions. We have downgraded the qualitative factors pertaining to economic conditions within our ALLL methodology. Should economic conditions worsen, we could experience further increases in our required ALLL and record additional provision for loan loss exposure.

Noninterest income

The components of noninterest income for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are shown below (dollars in thousands):

For the three months ended Variance
      September 30, 2017       September 30, 2016       $       %
Noninterest income:
Trust income $                       394 $                       388 $        6 1.5 %
Advisory and brokerage income 132 106 26 24.5 %
Royalty income 22 11 11        100.0 %
Customer service fees 225 240 (15 ) -6.3 %
Debit/credit card and ATM fees 206 223 (17 ) -7.6 %
Earnings/increase in value of bank owned life insurance 103 111 (8 ) -7.2 %
Fees on mortgage sales 55 41 14 34.1 %
Gains (losses) on sales & calls of securities (78 ) 181 (259 ) N/A
Gains (losses) on sales of other assets - 6 (6 ) -100.0 %
Other 99 106 (7 ) -6.6 %
Total noninterest income $ 1,158 $ 1,413 $ (255 ) -18.0 %

	For the three months ended				Variance
	June 30, 2020		June 30, 2019		$			%
Noninterest income:
Trust income	$	228	$	402	$	(174	)		-43.3	%
Advisory and brokerage income		163		156		7			4.5	%
Royalty income		24		4		20			500.0	%
Deposit account fees		143		192		(49	)		-25.5	%
Debit/credit card and ATM fees		134		189		(55	)		-29.1	%
Earnings/increase in value of bank owned life insurance		109		466		(357	)		-76.6	%
Fees on mortgage sales		30		56		(26	)		-46.4	%
Gains on sales of securities		590		64		526			821.9	%
Loan swap fee income		124		38		86			226.3	%
Other		81		133		(52	)		-39.1	%
Total noninterest income	$	1,626	$	1,700	$	(74	)		-4.4	%

Noninterest income for the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2020 of ~~$1.2~~$1.6 million was ~~$255~~$74 thousand or 4.4% lower ~~compared with~~than the ~~$1.4 million~~amount recorded for the three months ended June 30, 2019. Noninterest income declined due to fluctuations in several categories. Earnings from the proceeds of bank owned life insurance declined by $357 thousand, as the result of a death benefit received in the second quarter ~~ended September 30, 2016. Losses~~of 2019. Trust income declined $174 thousand due to restructuring of the entities and market conditions. In addition, deposit account fees and debit/credit card and ATM fees declined in total by $104 thousand due to suppressed customer activity. Those declines were offset by $526 thousand increase in gains on sales of securities, ~~of $78~~which was used to provide liquidity for PPP funding, and an $86 thousand increase in the third quarter of 2017 compared to a gain of $181 thousand for sale of securities in the same quarter of 2016 accounted for a $259 thousand reduction. As discussed earlier in this Management Discussion and Analysis section under “Securities,” the Company restructured a portion of the investment portfolio to achieve higher yields, resulting in the realized losses during the quarter ended September 30, 2017.loan swap fee income.

The components of noninterest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are shown below (dollars in thousands):

For the nine months ended Variance
      September 30, 2017       September 30, 2016       $       %
Noninterest income:
Trust income $                       1,171 $                       1,174 $        (3 ) -0.3 %
Advisory and brokerage income 387 287 100 34.8 %
Royalty income 198 20 178 N/A
Customer service fees 678 686 (8 ) -1.2 %
Debit/credit card and ATM fees 650 653 (3 ) -0.5 %
Earnings/increase in value of bank owned life insurance 312 331 (19 ) -5.7 %
Fees on mortgage sales 104 156 (52 ) -33.3 %
Gains (losses) on sales and calls of securities (74 ) 189 (263 ) N/A
Gains (losses) on sales of other assets - (21 ) 21        100.0 %
Other 308 312 (4 ) -1.3 %
Total noninterest income $ 3,734 $ 3,787 $ (53 ) -1.4 %

	For the six months ended				Variance
	June 30, 2020		June 30, 2019		$			%
Noninterest income:
Trust income	$	538	$	749	$	(211	)		-28.2	%
Advisory and brokerage income		341		292		49			16.8	%
Royalty income		71		8		63			787.5	%
Deposit account fees		322		373		(51	)		-13.7	%
Debit/credit card and ATM fees		291		346		(55	)		-15.9	%
Earnings/increase in value of bank owned life insurance		216		576		(360	)		-62.5	%
Fees on mortgage sales		77		86		(9	)		-10.5	%
Gains on sales of securities		643		64		579			904.7	%
Loan swap fee income		633		46		587			1276.1	%
Other		163		219		(56	)		-25.6	%
Total noninterest income	$	3,295	$	2,759	$	536			19.4	%

~~On a year-to-date basis, noninterest~~

Noninterest income for the six months ended June 30, 2020 of ~~$3.7~~$3.3 million was ~~recognized~~$536 thousand or 19.4% higher than the amount recorded for the six months ended June 30, 2019. Noninterest income increased due to fluctuations in ~~the first nine months of 2017, a slight decrease of $53~~several categories. Loan swap fee income increased $587 thousand ~~from the same period in 2016. The restructuring of a portion of the investment portfolio during the quarter ended September 30, 2017, as discussed above, resulted in realized losses~~and gains on sales of securities increased $579 thousand over the periods noted. Earnings from the proceeds of ~~$74~~bank owned life insurance declined by $360 thousand, ~~for the first three quarters of 2017, compared~~and trust income declined $211 thousand. Deposit account fees and debit/credit card and ATM fees declined in total by $106 thousand due to ~~gains on sales and calls of $189 thousand recognized in the same period of 2016. This $263 thousand variance was the major cause for the contraction in noninterest income.~~suppressed customer activity.

Wealth Management contributed positively to income in two areas. Royalty income was $178 thousand higher in the nine months ended September 30, 2017, partially as a result of a one-time payment received in the second quarter in connection with a revision to our agreement with Swift Run Capital Management, LLC (“SRCM”). Advisory and brokerage income of $387 thousand for the 2017 period was $100 thousand higher than the $287 thousand recognized for the same period in 2016. As a point of reference, for the full year of 2015, Wealth Management recognized $29 thousand in advisory and brokerage income. The purchase of the wealth management book of business early in 2016, as discussed earlier under Note 5 – Intangible Assets, accounts for the increased advisory and brokerage income during both periods.

Noninterest expense

The components of noninterest expense for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are shown below (dollars in thousands):

For the three months ended Variance
      September 30, 2017       September 30, 2016       $       %
Noninterest expense:
Salaries and employee benefits $ 1,998 $ 1,939 $      59 3.0 %
Net occupancy 461 465 (4 ) -0.9 %
Equipment 124 134 (10 ) -7.5 %
ATM, debit and credit card 90 86 4 4.7 %
Bank franchise tax 119 109 10 9.2 %
Computer software 91 100 (9 ) -9.0 %
Data processing 236 297 (61 )      -20.5 %
FDIC deposit insurance assessment 87 52 35 67.3 %
Marketing, advertising and promotion 126 137 (11 ) -8.0 %
Professional fees 153 115 38 33.0 %
Other 432 387 45 11.6 %
Total noninterest expense $ 3,917 $ 3,821 $ 96 2.5 %

	For the three months ended				Variance
	June 30, 2020		June 30, 2019		$			%
Noninterest expense:
Salaries and employee benefits	$	2,258	$	2,321	$	(63	)		-2.7	%
Net occupancy		452		444		8			1.8	%
Equipment		136		114		22			19.3	%
ATM, debit and credit card		41		45		(4	)		-8.9	%
Bank franchise tax		163		152		11			7.2	%
Computer software		136		139		(3	)		-2.2	%
Data processing		338		330		8			2.4	%
FDIC deposit insurance assessment		28		15		13			86.7	%
Loan expenses		66		80		(14	)		-17.5	%
Marketing, advertising and promotion		140		195		(55	)		-28.2	%
Professional fees		190		204		(14	)		-6.9	%
Settlement of claims		-		300		(300	)		-100.0	%
Other		456		346		110			31.8	%
Total noninterest expense	$	4,404	$	4,685	$	(281	)		-6.0	%

Noninterest expense for the ~~third~~ quarter ended June 30, 2020 of ~~2017 of $3.9~~$4.4 million was ~~$96~~$281 thousand ~~higher~~or 6.0% lower than the quarter ended ~~September~~June 30, ~~2016. The $59~~2019. During the second quarter of 2019, $300 thousand ~~increase~~was accrued in ~~salaries~~connection with a settlement of claims related to pending and ~~employee benefits was partially~~threatened legal proceedings. Other noninterest expense increased $110 thousand period over period, primarily due to ~~the expenses associated with hiring experienced loan officers. A reduction in data processing expenses~~increased expense of ~~$61 thousand was mainly due to a renegotiated contract with the Company’s core data processing provider.~~stock grants and cash compensation for directors.

The components of noninterest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are shown below (dollars in thousands):

	For the nine months ended				Variance					For the six months ended				Variance
	September 30, 2017		September 30, 2016		$			%		June 30, 2020		June 30, 2019		$			%
Noninterest expense:
Salaries and employee benefits	$	5,770	$	5,704	$	66		1.2	%	$	4,682	$	4,667	$	15			0.3	%
Net occupancy		1,390		1,413		(23	)	-1.6	%		904		923		(19	)		-2.1	%
Equipment		398		401		(3	)	-0.7	%		267		231		36			15.6	%
ATM, debit and credit card		247		235		12		5.1	%		94		91		3			3.3	%
Bank franchise tax		357		324		33		10.2	%		326		303		23			7.6	%
Computer software		283		281		2		0.7	%		276		247		29			11.7	%
Data processing		763		884		(121	)	-13.7	%		666		646		20			3.1	%
FDIC deposit insurance assessment		206		208		(2	)	-1.0	%		28		30		(2	)		-6.7	%
Loan expenses											157		142		15			10.6	%
Marketing, advertising and promotion		359		412		(53	)	-12.9	%		279		389		(110	)		-28.3	%
Professional fees		408		345		63		18.3	%		376		407		(31	)		-7.6	%
Settlement of claims											-		300		(300	)		-100.0	%
Other		1,274		1,170		104		8.9	%		892		720		172			23.9	%
Total noninterest expense	$	11,455	$	11,377	$	78		0.7	%	$	8,947	$	9,096	$	(149	)		-1.6	%

Noninterest expense for the six months ended June 30, 2020 of $8.9 million was $149 thousand or 1.6% lower than the six months ended June 30, 2019. Other noninterest expense increased $172 thousand period over period, primarily due to increased expense of stock grants and cash compensation for directors. As noted above, during the first ~~nine~~six months of ~~2017~~2019, $300 thousand was accrued in connection with a settlement of ~~$11.5 million was fairly level with~~claims related to pending and threatened legal proceedings. Marketing, advertising and promotion expenses declined $110 thousand from the ~~nine~~first six months ~~ended September 30, 2016.~~of 2019 to the first six months of 2020 due to concerted efforts to reduce expenses in 2020. Management continues to evaluate expenses for potential containments and reductions that would have a positive impact on net income on an ongoing basis.

The efficiency ratio (FTE) ~~fell to 58.6%~~of 59.5% for the ~~third quarter of 2017, an improvement of 5.2 percentage points~~three months ended June 30, 2020 compared favorably to the ~~efficiency ratio (FTE) of 63.8%~~65.2% for the same quarter of ~~2016.~~2019, due primarily to the increase in net interest income. The efficiency ~~ratio~~rations (FTE) of ~~58.1%~~61.8% for the ~~first nine~~six months ~~of 2017 reflected an improvement of 7.3 percentage points~~ended June 30, 2020 also compared favorably to ~~65.4%~~the 65.8% for the same ~~nine months~~period of ~~2016. The improved asset mix from the loan growth experienced the last three years, together with the restructuring~~2019, due to a combination of ~~the securities portfolio during the past quarter, should continue to enhance~~increased net interest ~~income. Further, additional~~income and increased noninterest ~~income prospects should add to the revenue stream, while cost containment and reduction strategies should control expenses. This combination is expected to continue to support a low efficiency ratio.~~income. Refer to the Reconcilement of Non-GAAP Measures table within the Non-GAAP presentations section for a reconcilement of GAAP to non-GAAP efficiency ratio.

Provision for Income Taxes

The Company benefited from the Tax Cuts and Jobs Act (“Tax Act”) enacted on December 22, 2017, which permanently lowered the corporate income tax rate to 21% effective January 1, 2018, amongst other significant changes to the U.S. tax law. For the ~~three~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016,~~2019, the Company provided ~~$811~~$843 thousand and ~~$629~~$711 thousand for Federal income taxes, respectively, resulting in an effective income tax rate of ~~31.7%~~19.4% and ~~31.1%, respectively. For the nine months of 2017 and 2016, the Company provided $2.5 million and $1.9 million, respectively, resulting in an effective income tax rate of 31.9% and 31.1%~~17.5%, respectively. The effective income tax rates differed from the U.S. statutory rate of ~~34% during the comparable periods~~21% primarily due to the effect of tax-exempt income from life insurance policies and municipal ~~bonds.~~bonds, and the effective rate for the six months ended June 30, 2019 was lower than the current year, as the proceeds from a bank-owned life insurance death benefit received during that period were tax-exempt.

OTHER SIGNIFICANT EVENTS

None

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level. There was no change in the internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2017~~2020 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None

ITEM 1A. RISK FACTORS.

Not required

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable

ITEM 5. OTHER INFORMATION.

(a)	~~(a)~~ Required 8-K disclosures.

None

(b)	~~(b)~~ Changes in procedures for director nominations by security holders.

None

ITEM 6. EXHIBITS.

Exhibit Number		Description of Exhibit
~~2.0~~
3.1		~~Reorganization Agreement and Plan~~Articles of ~~Share Exchange, dated as~~Incorporation of ~~March 6, 2013, between~~ Virginia National ~~Bank~~Bankshares Corporation, as amended and restated (incorporated by reference to Exhibit 3.1 to Virginia National Bankshares Corporation’s Pre-effective Amendment No. 1 to Form S-4 Registration Statement filed with the Securities and Exchange Commission on April 12, 2013).

3.2		Bylaws of Virginia National Bankshares Corporation (incorporated by reference to Exhibit 3.2 to Virginia National Bankshares Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2013).

~~3.1~~		Articles of Incorporation of Virginia National Bankshares Corporation, as amended and restated (incorporated by reference to Virginia National Bankshares Corporation’s Current Report on Form 8- K, filed with the Securities and Exchange Commission on December 18, 2013).

~~3.2~~31.1		Bylaws of Virginia National Bankshares Corporation (incorporated by reference to Virginia National Bankshares Corporation’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 18, 2013).

~~10.1~~		Virginia National Bank 2003 Stock Incentive Plan (originally filed in paper form as Exhibit A to Virginia National Bank’s Definitive Proxy Statement, filed with the Office of the Comptroller of the Currency on April 24, 2003. Virginia National Bankshares Corporation assumed this plan from Virginia National Bank on December 16, 2013 upon consummation of the reorganization under the agreement referenced as Exhibit 2.0).

~~10.2~~		Virginia National Bank Amended and Restated 2005 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to Virginia National Bankshares Corporation’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 25, 2017. Virginia National Bankshares Corporation assumed this plan from Virginia National Bank on December 16, 2013 upon consummation of the reorganization under the agreement referenced as Exhibit 2.0).

~~10.3~~		Virginia National Bankshares Corporation 2014 Stock Incentive Plan (incorporated by reference to Exhibit 99.2 to Virginia National Bankshares Corporation’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 25, 2017).

~~31.1~~		302 Certification of Principal Executive Officer

31.2		302 Certification of Principal Financial Officer

~~32.1~~		~~906 Certification~~

~~101.0~~		~~Interactive data files~~
32.1		906 Certification

101		The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline eXtensible Business Reporting Language, pursuant to Rule 405 of Regulation ~~S-T:~~S-T (1): (i) ~~the~~ Consolidated Balance Sheets ~~as of September 30, 2017 and December 31, 2016,~~(unaudited), (ii) ~~the~~ Consolidated Statements of Income ~~for the three and nine months ended September 30, 2017 and September 30, 2016,~~(unaudited), (iii) ~~the~~ Consolidated Statements of Net Loss and Comprehensive ~~Income for the three and nine months ended September 30, 2017 and September 30, 2016,~~Loss (unaudited), (iv) ~~the~~ Consolidated Statements of ~~Changes in Shareholders’~~Stockholders' Equity ~~for the nine months ended September 30, 2017 and September 30, 2016,~~(unaudited), (v) ~~the~~ Consolidated Statements of Cash Flows ~~for the nine months ended September 30, 2017 and September 30, 2016~~(unaudited), and (vi) ~~the~~ Notes to ~~the~~ Consolidated Financial Statements ~~(furnished herewith).~~(unaudited), tagged as blocks of text and including detailed tags
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101.0)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VIRGINIA NATIONAL BANKSHARES CORPORATION
			(Registrant)

By:
	~~By:~~	/s/ Glenn W. Rust
		Glenn W. Rust
		President and Chief Executive Officer

Date:	~~Date:~~	~~November 9, 2017~~ August 10, 2020

By:

	~~By:~~	/s/ Tara Y. Harrison
		Tara Y. Harrison
		Executive Vice President and Chief Financial Officer

Date:	~~Date:~~	~~November 9, 2017~~ August 10, 2020

	September 30, 2017			December 31, 2016 *
ASSETS	(Unaudited)
Cash and due from banks	$	7,143		$	10,047
Federal funds sold		3,155			28,453
Securities:
Available for sale, at fair value		71,049			56,662
Restricted securities, at cost		2,709			1,709
Total securities		73,758			58,371
Loans		501,024			482,135
Allowance for loan losses		(3,824	)		(3,688	)
Loans, net		497,200			478,447
Premises and equipment, net		7,437			8,046
Bank owned life insurance		14,229			13,917
Goodwill		372			372
Other intangible assets, net		604			680
Accrued interest receivable and other assets		6,430			6,697
Total assets	$	610,328		$	605,030
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits:
Noninterest-bearing	$	166,544		$	176,098
Interest-bearing		98,528			96,869
Money market deposit accounts		128,149			136,658
Certificates of deposit and other time deposits		114,049			115,026
Total deposits		507,270			524,651
Repurchase agreements and other borrowings		37,001			19,700
Accrued interest payable and other liabilities		1,208			1,625
Total liabilities		545,479			545,976

Shareholders' equity:
Preferred stock, $2.50 par value, 2,000,000 shares authorized, no shares outstanding		-			-
Common stock, $2.50 par value, 10,000,000 shares authorized; 2,410,680 and 2,368,777 issued and outstanding at September 30, 2017 and December 31, 2016, respectively		6,027			5,922
Capital surplus		22,036			21,152
Retained earnings		37,082			32,759
Accumulated other comprehensive loss		(296	)		(779	)
Total shareholders' equity		64,849			59,054
Total liabilities and shareholders' equity	$	610,328		$	605,030

	For the three months ended					For the nine months ended
	September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016
Interest and dividend income:
Loans, including fees	$	5,348		$	4,385	$	15,454		$	13,012
Federal funds sold		30			45		208			101
Investment securities:
Taxable		328			237		838			762
Tax exempt		78			78		203			242
Dividends		23			23		69			67
Other		1			3		7			7
Total interest and dividend income		5,808			4,771		16,779			14,191

Interest expense:
Demand and savings deposits		108			68		341			203
Certificates and other time deposits		179			157		516			474
Repurchase agreements and other borrowings		38			9		58			33
Total interest expense		325			234		915			710
Net interest income		5,483			4,537		15,864			13,481
Provision for (recovery of) loan losses		168			104		213			(291	)
Net interest income after provision for (recovery of) loan losses		5,315			4,433		15,651			13,772

Noninterest income:
Trust income		394			388		1,171			1,174
Advisory and brokerage income		132			106		387			287
Royalty income		22			11		198			20
Customer service fees		225			240		678			686
Debit/credit card and ATM fees		206			223		650			653
Earnings/increase in value of bank owned life insurance		103			111		312			331
Fees on mortgage sales		55			41		104			156
Gains (losses) on sales and calls of securities		(78	)		181		(74	)		189
Gains (losses) on sales of other assets		-			6		-			(21	)
Other		99			106		308			312
Total noninterest income		1,158			1,413		3,734			3,787

Noninterest expense:
Salaries and employee benefits		1,998			1,939		5,770			5,704
Net occupancy		461			465		1,390			1,413
Equipment		124			134		398			401
Other		1,334			1,283		3,897			3,859
Total noninterest expense		3,917			3,821		11,455			11,377

Income before income taxes		2,556			2,025		7,930			6,182
Provision for income taxes		811			629		2,530			1,921
Net income	$	1,745		$	1,396	$	5,400		$	4,261

Net income per common share, basic	$	0.73		$	0.59	$	2.26		$	1.80
Net income per common share, diluted	$	0.72		$	0.59	$	2.24		$	1.79

	For the three months ended						For the nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017		September 30, 2016
Net income	$	1,745		$	1,396		$	5,400	$	4,261

Other comprehensive income (loss)

Unrealized gain (loss) on securities, net of tax of ($105) and $224 for the three and nine months ended September 30, 2017; and net of tax of $54 and $388 for the three and nine months ended September 30, 2016		(206	)		104			434		756

Reclassification adjustment net of tax of $27 and $25 for the three and nine months ended September 30, 2017; and net of tax of ($62) and ($64) for the three and nine months ended September 30, 2016		51			(119	)		49		(125	)

Total other comprehensive income (loss)		(155	)		(15	)		483		631

Total comprehensive income	$	1,590		$	1,381		$	5,883	$	4,892

										Accumulated
										Other
	Common			Capital			Retained			Comprehensive
	Stock			Surplus			Earnings			Income (Loss)			Total
Balance, December 31, 2015	$	6,031		$	22,214		$	28,170		$	(118	)	$	56,297
Stock options exercised		28			151			-			-			179
Stock purchased under stock repurchase plan		(137	)		(1,123	)		-			-			(1,260	)
Stock option expense		-			20			-			-			20
Cash dividends declared ($0.36 per share)		-			-			(850	)		-			(850	)
Net income		-			-			4,261			-			4,261
Other comprehensive income		-			-			-			631			631
Balance, September 30, 2016	$	5,922		$	21,262		$	31,581		$	513		$	59,278

Balance, December 31, 2016	$	5,922		$	21,152		$	32,759		$	(779	)	$	59,054
Stock options exercised		105			876			-			-			981
Stock option expense		-			8			-			-			8
Cash dividends declared ($0.45 per share)		-			-			(1,077	)		-			(1,077	)
Net income		-			-			5,400			-			5,400
Other comprehensive income		-			-			-			483			483
Balance, September 30, 2017	$	6,027		$	22,036		$	37,082		$	(296	)	$	64,849

September 30, 2017	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. Government agencies	$	19,500	$	-	$	(334	)	$	19,166
Mortgage-backed securities/CMOs		31,819		2		(197	)		31,624
Municipal bonds		20,178		125		(44	)		20,259
	$	71,497	$	127	$	(575	)	$	71,049

December 31, 2016	Amortized		Gross Unrealized		Gross Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. Government agencies	$	14,998	$	-	$	(497	)	$	14,501
Corporate bonds		2,017		-		(7	)		2,010
Mortgage-backed securities/CMOs		25,470		27		(515	)		24,982
Municipal bonds		15,357		30		(218	)		15,169
	$	57,842	$	57	$	(1,237	)	$	56,662

September 30, 2017
	Less than 12 Months					12 Months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agencies	$	9,931	$	(69	)	$	9,235	$	(265	)	$	19,166	$	(334	)
Mortgage-backed/CMOs		23,918		(147	)		2,145		(50	)		26,063		(197	)
Municipal bonds		9,279		(37	)		612		(7	)		9,891		(44	)
	$	43,128	$	(253	)	$	11,992	$	(322	)	$	55,120	$	(575	)

December 31, 2016
	Less than 12 Months					12 Months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agencies	$	14,501	$	(497	)	$	-	$	-		$	14,501	$	(497	)
Corporate bonds		2,010		(7	)		-		-			2,010		(7	)
Mortgage-backed/CMOs		18,980		(441	)		2,629		(74	)		21,609		(515	)
Municipal bonds		10,382		(218	)		-		-			10,382		(218	)
	$	45,873	$	(1,163	)	$	2,629	$	(74	)	$	48,502	$	(1,237	)

September 30, 2017			Unpaid				Average		Interest
	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Land and land development	$	43	$	96	$	-	$	47	$	-
1-4 family residential mortgages, first lien, owner occupied		103		139		-		109		-
1-4 family residential mortgages, junior lien		384		386				362		12
Commercial non-owner occupied real estate		983		983		-		997		35
Student loans purchased		937		937		-		918		47
Impaired loans with a valuation allowance		-		-		-		-		-
Total impaired loans	$	2,450	$	2,541	$	-	$	2,433	$	94

December 31, 2016			Unpaid				Average		Interest
	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Land and land development	$	51	$	100	$	-	$	55	$	-
1-4 family residential mortgages, first lien, owner occupied		116		147		-		123		-
1-4 family residential mortgages, junior lien		354		354				360		16
Commercial non-owner occupied real estate		1,012		1,012		-		1,036		45
Student loans purchased		889		889		-		498		55
Impaired loans with a valuation allowance		-		-		-		-		-
Total impaired loans	$	2,422	$	2,502	$	-	$	2,072	$	116

Troubled debt restructurings (TDRs)	September 30, 2017			December 31, 2016
	No. of	Recorded		No. of	Recorded
	Loans	Investment		Loans	Investment
Performing TDRs
1-4 family residential mortgages, junior lien	2	$	345	2	$	354
Commercial non-owner occupied real estate	1		983	1		1,012
Student loans purchased	61		937	50		889
Total performing TDRs	64	$	2,265	53	$	2,255

Nonperforming TDRs
Land and land development	1	$	25	1	$	29
Total TDRs	65	$	2,290	54	$	2,284

	For three months ended					For three months ended
	September 30, 2017					September 30, 2016
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Recorded		Recorded		Number	Recorded		Recorded
	of Loans	Balance		Balance		of Loans	Balance		Balance
Student loans purchased	7	$	42	$	42	12	$	134	$	134
Total loans modified during the period	7	$	42	$	42	12	$	134	$	134

	For nine months ended					For nine months ended
	September 30, 2017					September 30, 2016
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Recorded		Recorded		Number	Recorded		Recorded
	of Loans	Balance			Balance	of Loans	Balance			Balance
Student loans purchased	16	$	133	$	133	50	$	847	$	868
Total loans modified during the period	16	$	133	$	133	50	$	847	$	868

Past Due Aging as of September 30, 2017	30-59		60-89		90 Days or								90Days Past Due
	Days Past		Days Past		More Past		Total Past				Total		and Still
	Due		Due		Due		Due		Current		Loans		Accruing
Commercial loans
Commercial and industrial - organic	$	-	$	-	$	-	$	-	$	42,230	$	42,230	$	-
Commercial and industrial - government guaranteed		-		-		-		-		22,722		22,722		-
Commercial and industrial - syndicated		-		-		-		-		17,262		17,262		-
Real estate construction and land
Residential construction		-		-		-		-		2,310		2,310		-
Commercial construction		-		-		-		-		12,788		12,788		-
Land and land development		18		-		-		18		10,031		10,049		-
Real estate mortgages
1-4 family residential, first lien, investment		-		-		-		-		39,251		39,251		-
1-4 family residential, first lien, owner occupied		-		-		18		18		16,791		16,809		18
1-4 family residential, junior lien		249		-		-		249		3,144		3,393		-
Home equity lines of credit, first lien		-		-		-		-		8,968		8,968		-
Home equity lines of credit, junior lien		-		-		-		-		13,498		13,498		-
Farm		-		-		-		-		10,551		10,551		-
Multifamily		-		-		-		-		31,948		31,948		-
Commercial owner occupied		-		-		-		-		77,823		77,823		-
Commercial non-owner occupied		-		-		-		-		107,828		107,828		-
Consumer loans
Consumer revolving credit		-		-		-		-		22,459		22,459		-
Consumer all other credit		-		1		-		1		9,704		9,705		-
Student loans purchased		500		162		324		986		50,444		51,430		324
Total Loans	$	767	$	163	$	342	$	1,272	$	499,752	$	501,024	$	342

Past Due Aging as of December 31, 2016	30-59		60-89		90 Days or								90Days Past Due
	Days Past		Days Past		More Past		Total Past				Total		and Still
	Due		Due		Due		Due		Current		Loans		Accruing
Commercial loans
Commercial and industrial - organic	$	65	$	61	$	-	$	126	$	41,434	$	41,560	$	-
Commercial and industrial - government guaranteed		-		-		-		-		5,550		5,550		-
Commercial and industrial - syndicated		-		-		-		-		19,107		19,107		-
Real estate construction and land
Residential construction		-		-		-		-		395		395		-
Commercial construction		-		-		-		-		4,422		4,422		-
Land and land development		-		-		22		22		10,843		10,865		-
Real estate mortgages
1-4 family residential, first lien, investment		125		-		-		125		37,413		37,538		-
1-4 family residential, first lien, owner occupied		-		-		20		20		16,609		16,629		20
1-4 family residential, junior lien		-		-		-		-		2,871		2,871		-
Home equity lines of credit, first lien		-		-		-		-		7,912		7,912		-
Home equity lines of credit, junior lien		36		-		-		36		13,986		14,022		-
Farm		-		-		-		-		11,253		11,253		-
Multifamily		-		-		-		-		31,052		31,052		-
Commercial owner occupied		-		-		-		-		83,296		83,296		-
Commercial non-owner occupied		-		-		-		-		107,062		107,062		-
Consumer loans
Consumer revolving credit		-		-		-		-		20,373		20,373		-
Consumer all other credit		1		48		-		49		11,279		11,328		-
Student loans purchased		1,316		139		188		1,643		55,257		56,900		188
Total Loans	$	1,543	$	248	$	230	$	2,021	$	480,114	$	482,135	$	208

Past Due Aging as of December 31, 2019	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due and Still Accruing
Commercial loans
Commercial and industrial - organic	$	604	$	20	$	-	$	624	$	38,219	$	38,843	$	-
Commercial and industrial - government guaranteed		-		-		548		548		34,799		35,347		548
Commercial and industrial - syndicated		-		-		-		-		6,398		6,398		-
Real estate construction and land
Residential construction		-		-		-		-		2,197		2,197		-
Commercial construction		-		-		-		-		6,880		6,880		-
Land and land development		1		-		280		281		7,782		8,063		14
Real estate mortgages
1-4 family residential, first lien, investment		188		-		-		188		43,911		44,099		-
1-4 family residential, first lien, owner occupied		-		123		-		123		20,548		20,671		-
1-4 family residential, junior lien		-		-		-		-		2,520		2,520		-
1-4 family residential - purchased		501		158		-		659		32,769		33,428		-
Home equity lines of credit, first lien		-		-		-		-		10,268		10,268		-
Home equity lines of credit, junior lien		-		-		-		-		9,671		9,671		-
Farm		-		-		-		-		8,808		8,808		-
Multifamily		-		-		-		-		27,093		27,093		-
Commercial owner occupied		-		-		-		-		96,117		96,117		-
Commercial non-owner occupied		0		-		-		0		118,561		118,561		-
Consumer loans
Consumer revolving credit		20		-		-		20		20,061		20,081		-
Consumer all other credit		43		0		-		43		5,698		5,741		-
Student loans purchased		697		218		209		1,124		43,623		44,747		209
Total Loans	$	2,054	$	519	$	1,037	$	3,610	$	535,923	$	539,533	$	771

				Estimated
			% of Total	Economic Useful
	Fair Value		Intangible Assets	Life
Identified Intangible Assets
Non-Compete Agreement	$	103	9.0%	3 years
Customer Relationships Intangible		670	58.5%	10 years
Total Identified Intangible Assets	$	773	67.5%

Goodwill	$	372	32.5%	Indefinite
Total Intangible Assets	$	1,145	100.0%

	Gross Carrying		Accumulated		Net Carrying
	Value		Amortization		Value
Identified Intangible Assets
Non-Compete Agreement	$	103	$	57	$	46
Customer Relationships Intangible		670		112	$	558
Total Identified Intangible Assets	$	773	$	169	$	604

	September 30, 2017
			Weighted Average		Aggregate
	Number of Options		Exercise Price		Intrinsic Value
Outstanding at January 1, 2017	98,893		$	22.83	$	592
Issued	2,000			30.20
Exercised	(41,903	)		22.70
Forfeited	(4,600	)		26.96
Expired	(10,465	)		30.86
Outstanding at September 30, 2017	43,925		$	20.96	$	656

Options exercisable at September 30, 2017	40,675		$	20.59	$	623

	Options Outstanding				Options Exercisable
		Weighted-	Weighted-			Weighted-
	Number of	Average	Average		Number of	Average
	Options	Remaining	Exercise		Options	Exercise
Exercise Price	Outstanding	Contractual Life	Price		Exercisable	Price
$ 11.74 to 20.00	19,118	2.1 Years	$	17.84	17,868	$	17.82
$ 20.01 to 30.00	22,807	0.9 Years		22.76	22,807		22.76
$ 30.01 to 36.74	2,000	9.5 Years		30.20	0		-
Total	43,925	1.8 Years	$	20.96	40,675	$	20.59

Fair Value Measurements at September 30, 2017 Using:
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government agencies	$	19,166	$	-	$	19,166	$	-
Mortgage-backed securities/CMOs		31,624		-		31,624		-
Municipal bonds		20,259		-		20,259		-
Total securities available for sale	$	71,049	$	-	$	71,049	$	-

Fair Value Measurements at December 31, 2016 Using:
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government agencies	$	14,501	$	-	$	14,501	$	-
Corporate bonds		2,010		-		2,010		-
Mortgage-backed securities/CMOs		24,982		-		24,982		-
Municipal bonds		15,169		-		15,169		-
Total securities available for sale	$	56,662	$	-	$	56,662	$	-

			Fair Value Measurement at September 30, 2017 using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Carrying value		Level 1		Level 2		Level 3		Fair Value
Assets
Cash and cash equivalent	$	10,298	$	10,298	$	-	$	-	$	10,298
Available for sale securities		71,049		-		71,049		-		71,049
Loans, net		497,200		-		-		490,081		490,081
Bank owned life insurance		14,229		-		14,229		-		14,229
Accrued interest receivable		1,850		-		395		1,455		1,850

Liabilities
Demand deposits and interest-bearing transaction and money market accounts	$	393,221	$	-	$	393,221	$	-	$	393,221
Certificates of deposit		114,049		-		113,992		-		113,992
Repurchase agreements and other borrowings		37,001		-		37,001		-		37,001
Accrued interest payable		123		-		123		-		123

			Fair Value Measurement at December 31, 2016 using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Carrying value		Level 1		Level 2		Level 3		Fair Value
Assets
Cash and cash equivalent	$	38,500	$	38,500	$	-	$	-	$	38,500
Available for sale securities		56,662		-		56,662		-		56,662
Loans, net		478,447		-		-		476,438		476,438
Bank owned life insurance		13,917		-		13,917		-		13,917
Accrued interest receivable		1,662		-		272		1,390		1,662

Liabilities
Demand deposits and interest-bearing transaction and money market accounts	$	409,625	$	-	$	409,625	$	-	$	409,625
Certificates of deposit		115,026		-		114,979		-		114,979
Repurchase agreements and other borrowings		19,700		-		19,700		-		19,700
Accrued interest payable		107		-		107		-		107

Three months ended September 30, 2017	Bank			VNB Wealth			Consolidated
Net interest income	$	5,457		$	26		$	5,483
Provision for loan losses		168			-			168
Noninterest income		610			548			1,158
Noninterest expense		3,380			537			3,917
Income before income taxes		2,519			37			2,556
Provision for income taxes		798			13			811
Net income	$	1,721		$	24		$	1,745
Total assets	$	600,690		$	9,638		$	610,328

Three months ended September 30, 2016	Bank			VNB Wealth			Consolidated
Net interest income	$	4,526		$	11		$	4,537
Provision for loan losses		104			-			104
Noninterest income		909			504			1,413
Noninterest expense		3,291			530			3,821
Income (loss) before income taxes		2,040			(15	)		2,025
Provision for (benefit of) income taxes		634			(5	)		629
Net income (loss)	$	1,406		$	(10	)	$	1,396
Total assets	$	559,933		$	9,606		$	569,539

Nine months ended September 30, 2017	Bank			VNB Wealth			Consolidated
Net interest income	$	15,798		$	66		$	15,864
Provision for loan losses		213			-			213
Noninterest income		1,977			1,757			3,734
Noninterest expense		9,858			1,597			11,455
Income before income taxes		7,704			226			7,930
Provision for income taxes		2,452			78			2,530
Net income	$	5,252		$	148		$	5,400

Nine months ended September 30, 2016	Bank			VNB Wealth			Consolidated
Net interest income	$	13,447		$	34		$	13,481
Provision for (recovery of) loan losses		(291	)		-			(291	)
Noninterest income		2,332			1,455			3,787
Noninterest expense		9,645			1,732			11,377
Income (loss) before income taxes		6,425			(243	)		6,182
Provision for (benefit of) income taxes		2,003			(82	)		1,921
Net income (loss)	$	4,422		$	(161	)	$	4,261

Deposit accounts

(dollars in thousands)	September 30, 2017				December 31, 2016				September 30, 2016
	Balance		% of Total Deposits		Balance		% of Total Deposits		Balance		% of Total Deposits
No cost and low cost deposits:
Noninterest demand deposits	$	166,544	32.8	%	$	176,098	33.5	%	$	176,063	35.6	%
Interest checking accounts		98,528	19.4	%		96,869	18.5	%		91,808	18.5	%
Money market deposit accounts		128,149	25.3	%		136,658	26.0	%		114,903	23.2	%
Total noninterest and low cost deposit accounts		393,221	77.5	%		409,625	78.0	%		382,774	77.3	%

Time deposit accounts:
Certificates of deposit		97,273	19.2	%		90,084	17.2	%		94,469	19.1	%
CDARS deposits		16,776	3.3	%		24,942	4.8	%		17,936	3.6	%
Total certificates of deposit and other time deposits		114,049	22.5	%		115,026	22.0	%		112,405	22.7	%

Total deposit account balances	$	507,270	100.0	%	$	524,651	100.0	%	$	495,179	100.0	%

Reconcilement of Non-GAAP Measures	For the three months ended						For the nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net interest income	$	5,483		$	4,537		$	15,864		$	13,481
Fully taxable-equivalent adjustment		40			40			104			124
Net interest income (FTE)	$	5,523		$	4,577		$	15,968		$	13,605

Efficiency ratio		59.0	%		64.2	%		58.4	%		65.9	%
Impact of FTE adjustment		-0.4	%		-0.4	%		-0.3	%		-0.5	%
Efficiency ratio (FTE)		58.6	%		63.8	%		58.1	%		65.4	%

Net interest margin		3.67	%		3.38	%		3.56	%		3.46	%
Fully tax-equivalent adjustment		0.03	%		0.03	%		0.02	%		0.03	%
Net interest margin (FTE)		3.70	%		3.41	%		3.58	%		3.49	%