DEFM14A 1 d36773ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant      ☒                     Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12

Fauquier Bankshares, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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LOGO    LOGO

MERGER PROPOSED – YOUR VOTE IS VERY IMPORTANT

Dear Fellow Shareholders:

The boards of directors of Virginia National Bankshares Corporation (“Virginia National”) and Fauquier Bankshares, Inc. (“Fauquier”) have unanimously approved a strategic merger in which Fauquier will merge with and into Virginia National. After the merger, Virginia National is expected to have approximately $1.7 billion in assets, $1.5 billion in deposits, $1.2 billion in loans and $1.1 billion in assets under management. We are sending you this document to ask you, as a Virginia National and/or Fauquier shareholder, to approve the merger.

In the merger, each share of Fauquier common stock will be converted into the right to receive 0.675 shares of Virginia National common stock (the “exchange ratio”), plus cash in lieu of fractional shares. Although the exchange ratio is fixed, the market value of the merger consideration that Fauquier shareholders will receive will fluctuate with the market price of Virginia National stock and will not be known at the time the Virginia National and Fauquier shareholders vote on the merger. Based on the closing price per share of Virginia National common stock of $24.10 on September 30, 2020, the date preceding the public announcement of the merger, the merger consideration represented approximately $16.27 in value for each share of Fauquier common stock, or approximately $61.79 million on an aggregate basis. Based on the closing price per share of Virginia National common stock of $29.30 on February 4, 2021, the last practicable date before the date of this joint proxy statement/prospectus, the merger consideration represented approximately $19.78 in value for each share of Fauquier common stock, or approximately $75.13 million on an aggregate basis. We urge you to obtain current market quotations for Virginia National common stock, which is quoted on the OTC Markets Group’s OTCQX marketplace (trading symbol “VABK”) and Fauquier common stock, which is listed on The Nasdaq Capital Market (trading symbol “FBSS”).

Based on the current number of shares of Fauquier common stock outstanding, Virginia National expects to issue approximately 2,564,028 shares of common stock in the aggregate upon completion of the merger, with current Virginia National shareholders owning approximately 51.4% of Virginia National’s outstanding common stock and former Fauquier shareholders owning approximately 48.6% of Virginia National’s outstanding common stock immediately following the merger.

Your vote is very important. We are holding special meetings of our respective shareholders to obtain approval of the merger agreement and related plan of merger as described in this joint proxy statement/prospectus. Approval of the merger agreement and related plan of merger requires the affirmative vote of the holders of at least a majority of the outstanding shares of Virginia National common stock and more than two-thirds of the outstanding shares of Fauquier common stock.

Whether or not you plan to attend the special meeting of Virginia National or Fauquier, it is important that your shares be represented at the applicable meeting and your vote recorded. If you are a record holder, please take the time to vote by completing and mailing the enclosed proxy card or by voting via the Internet or telephone using the instructions given on the proxy card. Even if you return the proxy card, you may attend the Virginia National or the Fauquier special meeting and vote your shares online during the meeting. If your shares are held through a broker, bank or other custodian, please follow the instructions on the voting instruction card provided by such person. The boards of directors of Virginia National and Fauquier unanimously recommend that you vote “FOR” approval of the merger agreement and related plan of merger and “FOR” the other matters to be considered at each shareholder meeting.

This document, which serves as a joint proxy statement for the special meetings of Virginia National and Fauquier, and as a prospectus for the shares of Virginia National common stock to be issued to Fauquier shareholders in the merger, describes the special meetings, the merger, the documents related to the merger and other related matters. Please carefully read this entire joint proxy statement/prospectus, including the information in the “Risk Factors” section beginning on page 32 for a discussion of the risks relating to the proposed merger.

 

Thank you for your support.   
LOGO    LOGO
Glenn W. Rust    Marc J. Bogan
President and Chief Executive Officer    President and Chief Executive Officer
Virginia National Bankshares Corporation    Fauquier Bankshares, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares of Virginia National common stock are not savings or deposit accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of this joint proxy statement/prospectus is February 5, 2021, and it is first being mailed or otherwise delivered to the shareholders of Virginia National and Fauquier on or about February 9, 2021.


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LOGO

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON MARCH 25, 2021

A special meeting of shareholders of Virginia National Bankshares Corporation, a Virginia corporation (“Virginia National”), will be held on Thursday, March 25, 2021 at 10:00 a.m., Eastern Time. The special meeting will be held in a virtual-only meeting format via live webcast that may be accessed by visiting www.proxydocs.com/VABK. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/VABK prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. The special meeting is being held for the purpose of considering and voting upon the following:

 

  1.

A proposal to approve the Agreement and Plan of Reorganization, dated as of September 30, 2020, between Virginia National and Fauquier Bankshares, Inc. (“Fauquier”), including the related Plan of Merger (together, the “merger agreement”), pursuant to which Fauquier will merge with and into Virginia National, as more fully described in the accompanying joint proxy statement/prospectus (the “Virginia National merger proposal”). A copy of the merger agreement is attached as Appendix A to the accompanying joint proxy statement/prospectus.

 

  2.

A proposal to approve, in a non-binding advisory vote, certain compensation that may become payable to Virginia National’s named executive officers in connection with the merger (the “Virginia National compensation proposal”).

 

  3.

A proposal to adjourn the special meeting to a later date or dates, if necessary, to solicit additional proxies to establish a quorum or approve the Virginia National merger proposal (the “Virginia National adjournment proposal”).

 

  4.

To act upon any other matter that may properly come before the special meeting or any adjournment thereof.

Only holders of record of Virginia National common stock at the close of business on January 22, 2021 will be entitled to notice of and to vote at the special meeting or any adjournment thereof.

These proposals are described in greater detail in the accompanying joint proxy statement/prospectus. You are urged to read the joint proxy statement/prospectus and its appendices carefully and in its entirety. Virginia National will transact no other business at the Virginia National special meeting of shareholders, except for business properly brought before the meeting or any adjournment or postponement thereof.

Virginia National’s board of directors unanimously recommends that Virginia National shareholders vote “FOR” the Virginia National merger proposal, “FOR” the Virginia National compensation proposal and “FOR” the Virginia National adjournment proposal.

You are cordially invited to attend the virtual meeting online. However, even if you expect to attend the meeting, you are requested to complete, sign, and date the enclosed appointment of proxy and return it in the envelope provided for that purpose to ensure that a quorum is present at the meeting. You may also vote via the Internet or telephone by following the instructions on the proxy card. If your shares are held through a broker, bank or other custodian, please follow the instructions on the voting instruction card provided by such person.

You may revoke your proxy at any time prior to or at the meeting by providing written notice to Virginia National, by executing a proxy bearing a later date, by timely submitting a later proxy via the telephone or Internet, or by attending the meeting and voting online during the meeting. If your shares are held through a broker, bank or other custodian and you wish to revoke your proxy or change your vote, you should contact that person.

 

By order of the Board of Directors

LOGO

Donna G. Shewmake
Corporate Secretary

Charlottesville, Virginia

February 5, 2021


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LOGO

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON MARCH 25, 2021

A special meeting of shareholders of Fauquier Bankshares, Inc., a Virginia corporation (“Fauquier”), will be held on Thursday, March 25, 2021 at 10:00 a.m., Eastern Time. The special meeting will be held in a virtual-only meeting format via live webcast that may be accessed by visiting www.proxydocs.com/FBSS. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/FBSS prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. The special meeting is being held for the purpose of considering and voting upon the following:

 

  1.

A proposal to approve the Agreement and Plan of Reorganization, dated as of September 30, 2020, between Virginia National Bankshares Corporation (“Virginia National”) and Fauquier, including the related Plan of Merger (together, the “merger agreement”), pursuant to which Fauquier will merge with and into Virginia National, as more fully described in the accompanying joint proxy statement/prospectus (the “Fauquier merger proposal”). A copy of the merger agreement is attached as Appendix A to the accompanying joint proxy statement/prospectus.

 

  2.

A proposal to approve, in a non-binding advisory vote, certain compensation that may become payable to Fauquier’s named executive officers in connection with the merger (the “Fauquier compensation proposal”).

 

  3.

A proposal to adjourn the special meeting to a later date or dates, if necessary, to solicit additional proxies to establish a quorum or approve the Fauquier merger proposal (the “Fauquier adjournment proposal”).

 

  4.

To act upon any other matter that may properly come before the special meeting or any adjournment thereof.

Only holders of record of Fauquier common stock at the close of business on January 22, 2021 will be entitled to notice of and to vote at the special meeting or any adjournment thereof.

These proposals are described in greater detail in the accompanying joint proxy statement/prospectus. You are urged to read the joint proxy statement/prospectus and its appendices carefully and in its entirety. Fauquier will transact no other business at the Fauquier special meeting of shareholders, except for business properly brought before the meeting or any adjournment or postponement thereof.

Fauquier’s board of directors unanimously recommends that Fauquier shareholders vote “FOR” the Fauquier merger proposal, “FOR” the Fauquier compensation proposal and “FOR” the Fauquier adjournment proposal.

You are cordially invited to attend the virtual meeting online. However, even if you expect to attend the meeting, you are requested to complete, sign, and date the enclosed appointment of proxy and return it in the envelope provided for that purpose to ensure that a quorum is present at the meeting. You may also vote via the Internet or telephone by following the instructions on the proxy card. If your shares are held through a broker, bank or other custodian, please follow the instructions on the voting instruction card provided by such person.

You may revoke your proxy at any time prior to or at the meeting by providing written notice to Fauquier, by executing a proxy bearing a later date, by timely submitting a later proxy via the telephone or Internet, or by attending the meeting and voting online during the meeting. If your shares are held through a broker, bank or other custodian and you wish to revoke your proxy or change your vote, you should contact that person.

 

By order of the Board of Directors

LOGO

Allison J. Dodson
Secretary

Warrenton, Virginia

February 5, 2021


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ADDITIONAL INFORMATION

This joint proxy statement/prospectus is part of a registration statement filed by Virginia National with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), that registers the shares of Virginia National common stock to be issued to shareholders of Fauquier in the merger. The registration statement, including the attached exhibits and schedules, contains additional relevant information about Virginia National and its common stock, Fauquier and the combined company. The rules and regulations of the SEC allow Virginia National to omit some information included in the registration statement from this joint proxy statement/prospectus.

The SEC maintains a website that contains information about issuers, like Virginia National and Fauquier, that file electronically with the SEC. The address of that site is http://www.sec.gov. Virginia National and Fauquier are each subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in accordance with those requirements, files reports and proxy statements with the SEC. You may inspect and obtain copies of these reports and proxy statements and other information on the SEC’s website at the address set forth above.

Virginia National’s website is http://www.vnbcorp.com and Fauquier’s website is http://investor.tfb.bank. Virginia National and Fauquier will each make available on its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after it electronically files such materials with, or furnishes them to, the SEC. The information on Virginia National’s and Fauquier’s websites is not a part of, and is not incorporated into, this joint proxy statement/prospectus.

Additional information about Virginia National may be obtained by contacting Tara Y. Harrison, Virginia National’s Chief Financial Officer, at 404 People Place, Charlottesville, Virginia 22911, or by telephone at (434) 817-8621, and additional information about Fauquier may be obtained by contacting Christine E. Headly, Fauquier’s Chief Financial Officer, at 10 Courthouse Square, Warrenton, Virginia 20186, or by telephone at (540) 349-0218. To obtain timely delivery, you must request the information no later than March 18, 2021. In addition, financial information about Virginia National’s wholly-owned bank subsidiary, Virginia National Bank, and Fauquier’s wholly-owned bank subsidiary, The Fauquier Bank, is available through financial reports that they file with their regulators on a quarterly basis. This information is available through the website maintained by the Federal Financial Institutions Examination Council at http://www.ffiec.gov. The information on, or that can be accessed through, the Federal Financial Institutions Examination Council’s website is not part of, and is not incorporated into, this joint proxy statement/prospectus.

Virginia National has supplied all information contained in this joint proxy statement/prospectus relating to Virginia National and Virginia National Bank, and Fauquier has supplied all information contained in this joint proxy statement/prospectus relating to Fauquier and The Fauquier Bank.

You should rely only on the information contained in this joint proxy statement/prospectus relating to the offered securities. Neither Virginia National nor Fauquier has authorized anyone to provide you with different information. Neither Virginia National nor Fauquier is offering to sell the securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information that appears in this joint proxy statement/prospectus is accurate as of any date other than the date of this joint proxy statement/prospectus. The business, financial condition, results of operations and prospects of Virginia National or Fauquier may have changed since that date.

 

 

Unless otherwise specified in this joint proxy statement/prospectus or the context otherwise requires:

 

   

references to “Virginia National” are to Virginia National Bankshares Corporation;

 

   

references to “Virginia National Board” are to the board of directors of Virginia National;

 

   

references to “Fauquier” are to Fauquier Bankshares, Inc.;

 

   

references to “Fauquier Board” are to the board of directors of Fauquier;

 

   

references to the “merger agreement” are to the Agreement and Plan of Reorganization, dated as of September 30, 2020, between Virginia National and Fauquier, including the related Plan of Merger, a copy of which is attached to this joint proxy statement/prospectus as Appendix A;

 

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references to the “merger” are to the proposed merger of Fauquier with and into Virginia National pursuant to the terms of the merger agreement, as more fully described in the “The Merger” section beginning on page 58 and “The Merger Agreement” section beginning on page 96; and

 

   

references to the “shareholder meetings” are to the special meeting of shareholders of Virginia National and the special meeting of shareholders of Fauquier, collectively.

 

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TABLE OF CONTENTS

 

     Page Number  

Questions and Answers about the Merger and the Shareholder Meetings

     1  

Summary

     7  

Selected Historical Consolidated Financial Data of Virginia National

     16  

Selected Historical Consolidated Financial Data of Fauquier

     18  

Unaudited Pro Forma Condensed Combined Financial Information

     20  

Comparative Historical and Unaudited Pro Forma Per Share Data

     30  

Comparative Market Prices of Common Stock

     31  

Risk Factors

     32  

Risks Related to the Merger

     32  

Risks Related to Virginia National’s Business

     36  

Risks Related to Virginia National’s Common Stock

     45  

Cautionary Statement Regarding Forward-Looking Statements

     47  

Virginia National Special Meeting of Shareholders

     50  

General

     50  

Matters to be Considered

     50  

Recommendations of the Virginia National Board

     50  

Record Date and Voting Rights

     50  

Votes Required

     51  

Stock Ownership of Virginia National Directors and Executive Officers

     51  

Voting of Proxies

     51  

Revocation of Proxies

     52  

Solicitation of Proxies

     52  

Virginia National Proposals

     53  

Proposal No. 1 – Virginia National Merger Proposal

     53  

Proposal No. 2 – Virginia National Compensation Proposal

     53  

Proposal No. 3 – Virginia National Adjournment Proposal

     53  

Fauquier Special Meeting of Shareholders

     54  

General

     54  

Matters to be Considered

     54  

Recommendations of the Fauquier Board

     54  

Record Date and Voting Rights

     54  

Votes Required

     55  

Stock Ownership of Fauquier Directors and Executive Officers

     55  

Voting of Proxies

     55  

Revocation of Proxies

     56  

Solicitation of Proxies

     56  

Fauquier Proposals

     57  

Proposal No. 1 – Fauquier Merger Proposal

     57  

Proposal No. 2 – Fauquier Compensation Proposal

     57  

Proposal No. 3 – Fauquier Adjournment Proposal

     57  

The Merger

     58  

Background of the Merger

     58  

Virginia National’s Reasons for the Merger; Recommendation of the Virginia National Board

     64  

Opinion of Virginia National’s Financial Advisor

     66  

Fauquier’s Reasons for the Merger; Recommendation of the Fauquier Board

     72  

Opinion of Fauquier’s Financial Advisor

     75  

Certain Unaudited Prospective Financial Information

     83  

Interests of Virginia National Directors and Executive Officers in the Merger

     85  

Interests of Fauquier Directors and Executive Officers in the Merger

     86  

Virginia National’s Board of Directors and Management Following Completion of the Merger

     91  

Amendments to Virginia National’s and Virginia National Bank’s Bylaws

     92  

 

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     Page Number  

Public Trading Markets

     92  

No Appraisal or Dissenters’ Rights in the Merger

     92  

Regulatory Approvals Required for the Merger

     92  

Accounting Treatment

     93  

Resales of Virginia National Common Stock

     93  

Material United States Federal Income Tax Consequences

     93  

The Merger Agreement

     96  

Structure of the Merger

     96  

Merger Consideration

     96  

Closing and Effective Time of the Merger

     96  

Procedures for Exchanging Fauquier Common Stock

     96  

Treatment of Fauquier Equity-Based Awards

     97  

Representations and Warranties

     97  

Covenants and Agreements

     99  

Required Shareholder Votes

     101  

Agreement Not to Solicit Other Offers

     101  

Expenses and Fees

     102  

Indemnification and Insurance

     102  

Assumption of Debentures

     102  

Conditions to Complete the Merger

     102  

Termination of the Merger Agreement

     103  

Termination Fees

     104  

Amendment and Waiver of the Merger Agreement

     105  

Affiliate and Director Noncompetition Agreements

     105  

Information about Virginia National

     106  

General

     106  

Products and Services

     106  

Market Area

     107  

Competition

     107  

Properties

     107  

Employees

     108  

Legal Proceedings

     108  

Supervision and Regulation

     108  

Certain Relationships and Related Transactions

     116  

Board of Directors and Director Compensation

     117  

Executive Officers of Virginia National

     119  

Executive Compensation

     119  

Virginia National’s Management’s Discussion and Analysis of Financial Condition and Results of Operations

     125  

Information about Fauquier

     157  

General

     157  

Products and Services

     157  

Market Area

     159  

Competition

     159  

Properties

     159  

Employees

     159  

Legal Proceedings

     159  

Supervision and Regulation

     160  

Certain Relationships and Related Transactions

     161  

Board of Directors and Director Compensation

     162  

Executive Officers of Fauquier

     164  

Executive Compensation

     165  

Fauquier’s Management’s Discussion and Analysis of Financial Condition and Results of Operations

     170  

Description of Virginia National Capital Stock

     192  

 

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     Page Number  

General

     192  

Common Stock

     192  

Preferred Stock

     192  

Directors

     193  

Antitakeover Provisions of Virginia National’s Articles of Incorporation and Bylaws, and Virginia Law

     193  

Limitation of Liability of Directors and Officers

     195  

Indemnification

     195  

Virginia National Common Stock Not Insured by the FDIC

     195  

Comparison of Shareholders’ Rights

     196  

Authorized Capital Stock

     196  

Dividend Rights

     196  

Voting Rights

     196  

Directors and Classes of Directors

     196  

Antitakeover Provisions

     197  

Amendments to Articles of Incorporation and Bylaws

     198  

Director and Officer Exculpation

     199  

Indemnification

     199  

Security Ownership of Certain Beneficial Owners and Management of Virginia National

     200  

Security Ownership of Certain Beneficial Owners and Management of Fauquier

     201  

Experts

     203  

Legal Matters

     203  

Submission of Future Virginia National and Fauquier Shareholder Proposals

     203  

Index to Financial Statements

     F-i  

 

Appendices         
   Appendix A       Agreement and Plan of Reorganization, dated as of September 30, 2020, between Virginia National Bankshares Corporation and Fauquier Bankshares, Inc.
   Appendix B       Opinion of Performance Trust Capital Partners, LLC
   Appendix C       Opinion of Piper Sandler & Co.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SHAREHOLDER MEETINGS

The following are answers to certain questions that you may have regarding the merger and the shareholder meetings of Virginia National and Fauquier. You should carefully read this entire joint proxy statement/prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to and other documents referred to in this joint proxy statement/prospectus.

 

Q:

Why am I receiving this document?

 

A:

Virginia National and Fauquier have entered into an Agreement and Plan of Reorganization, dated as of September 30, 2020, under which Fauquier will merge with and into Virginia National, with Virginia National as the surviving corporation. If the merger is completed, it is expected that The Fauquier Bank, Fauquier’s wholly-owned bank subsidiary, will merge with and into Virginia National Bank, Virginia National’s wholly-owned bank subsidiary. A copy of the merger agreement is included in this joint proxy statement/prospectus as Appendix A.

You are receiving this document because Virginia National and Fauquier are each holding a special meeting of shareholders to vote on the proposals necessary to complete the merger. The merger cannot be completed unless, among other things:

 

   

the holders of at least a majority of the shares of Virginia National’s outstanding common stock entitled to vote at Virginia National’s special meeting of shareholders (the “Virginia National special meeting”) vote in favor of the merger; and

 

   

the holders of more than two-thirds of the shares of Fauquier’s outstanding common stock entitled to vote at Fauquier’s special meeting of shareholders (the “Fauquier special meeting”) vote in favor of the merger.

The Virginia National Board and the Fauquier Board have each unanimously determined that the merger is in the best interest of its shareholders, approved the merger agreement and the merger, and recommended that its shareholders vote to approve the merger agreement and the merger.

This joint proxy statement/prospectus contains important information about the merger and the other proposals being voted on at the shareholder meetings, and you should read it carefully. It is a joint proxy statement because both the Virginia National Board and the Fauquier Board are soliciting proxies from their respective shareholders. It is a prospectus because it describes the shares of Virginia National common stock that Virginia National will issue to holders of Fauquier common stock in connection with the merger. The enclosed materials allow you to have your shares voted by proxy without attending your respective shareholder meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.

 

Q:

Why do Virginia National and Fauquier want to merge?

 

A:

Virginia National and Fauquier are merging to create a larger and more vibrant institution with increased visibility and the potential to leverage overhead costs and enhance profitability. With the addition of Fauquier’s 11 branches to Virginia National’s existing footprint, the combined organization is expected to have over $1.7 billion in assets and $1.1 billion in assets under management.

In addition, shareholders of the combined company could benefit from greater potential for increased liquidity in the market for Virginia National’s common stock and higher trading multiples than either company could achieve independently. Virginia National has agreed to use its commercially reasonable efforts to cause its common stock, including the shares to be issued in connection with the merger, to be approved for listing on a national exchange. Virginia National intends to apply to list its common stock on a national stock exchange under the trading symbol “VABK” in connection with the merger.

The Virginia National Board and the Fauquier Board have each unanimously determined that the merger is fair and in the best interest of its respective shareholders and recommends that its shareholders vote for the proposals to be considered at its special meeting. You should review the reasons for the merger described in greater detail under the sections entitled “The Merger – Virginia National’s Reasons for the Merger; Recommendation of the Virginia National Board” and “The Merger – Fauquier’s Reasons for the Merger; Recommendation of the Fauquier Board,” beginning on pages 64 and 72, respectively.

 

Q:

What will Fauquier shareholders receive in the merger?

 

A:

At the effective time of the merger, each issued and outstanding share of Fauquier common stock will be converted into the right to receive 0.675 shares (the “exchange ratio”) of Virginia National common stock, plus cash in lieu of fractional shares. This

 

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  exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. Virginia National shareholders will continue to own their existing shares, which will not be affected by the merger.

 

Q:

Will the value of the merger consideration change between the date of this joint proxy statement/prospectus and the effective time of the merger?

 

A:

Yes. Although the exchange ratio is fixed, the market value of the 0.675 shares of Virginia National common stock to be received in exchange for each share of Fauquier common stock will fluctuate based on the market value of Virginia National common stock. Any change in the market price of Virginia National common stock after the date of this joint proxy statement/prospectus will change the value of the shares of Virginia National common stock that Fauquier shareholders will receive in the merger.

 

Q:

When and where are the shareholder meetings?

 

A:

Virginia National: The Virginia National special meeting is scheduled to take place on Thursday, March 25, 2021 at 10:00 a.m., Eastern Time. The special meeting will be held in a virtual-only meeting format via live webcast that may be accessed by visiting www.proxydocs.com/VABK. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/VABK prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time.

Fauquier: The Fauquier special meeting is scheduled to take place on Thursday, March 25, 2021 at 10:00 a.m., Eastern Time. The special meeting will be held in a virtual-only meeting format via live webcast that may be accessed by visiting www.proxydocs.com/FBSS. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/FBSS prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time.

 

Q:

Who can vote at the shareholder meetings?

 

A:

Virginia National: Holders of record of Virginia National common stock at the close of business on January 22, 2021, which is the date that the Virginia National Board has fixed as the record date for the Virginia National special meeting, are entitled to notice of and to vote at the Virginia National special meeting.

Fauquier: Holders of record of Fauquier common stock at the close of business on January 22, 2021, which is the date that the Fauquier Board has fixed as the record date for the Fauquier special meeting, are entitled to notice of and to vote at the Fauquier special meeting.

 

Q:

What if I hold shares in both Virginia National and Fauquier?

 

A:

If you are both a Virginia National shareholder and a Fauquier shareholder, you will receive two separate packages of proxy materials. A vote cast as a Virginia National shareholder will not count as a vote cast as a Fauquier shareholder, and a vote cast as a Fauquier shareholder will not count as a vote cast as a Virginia National shareholder. Please separately complete, sign and return a proxy card or vote your shares by following the instructions for telephone or Internet voting for your Virginia National shares and your Fauquier shares.

 

Q:

In addition to the Virginia National merger proposal, what are Virginia National’s shareholders voting on at the Virginia National special meeting?

 

A:

Virginia National’s shareholders are also voting on a proposal to approve, in a non-binding advisory vote, certain compensation that may become payable to Virginia National’s named executive officers in connection with the merger (the “Virginia National compensation proposal”), and a proposal to adjourn the special meeting to a later date or dates, if necessary, to solicit additional proxies to establish a quorum or approve the Virginia National merger proposal (the “Virginia National adjournment proposal”).

 

Q:

How does the Virginia National Board recommend that Virginia National shareholders vote at the Virginia National special meeting?

 

A:

The Virginia National Board unanimously recommends that Virginia National shareholders vote “FOR” the Virginia National merger proposal, “FOR” the Virginia National compensation proposal and “FOR” the Virginia National adjournment proposal.

 

Q:

In addition to the Fauquier merger proposal, what are Fauquier’s shareholders voting on at the Fauquier special meeting?

 

A:

Fauquier’s shareholders are also voting on a proposal to approve, in a non-binding advisory vote, certain compensation that may become payable to Fauquier’s named executive officers in connection with the merger (the “Fauquier compensation proposal”),

 

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  and a proposal to adjourn the special meeting to a later date or dates, if necessary, to solicit additional proxies to establish a quorum or approve the Fauquier merger proposal (the “Fauquier adjournment proposal”).

 

Q:

How does the Fauquier Board recommend that Fauquier shareholders vote at the Fauquier special meeting?

 

A:

The Fauquier Board unanimously recommends that Fauquier shareholders vote “FOR” the Fauquier merger proposal, “FOR” the Fauquier compensation proposal and “FOR” the Fauquier adjournment proposal.

 

Q:

What do I need to do now?

 

A:

After you have carefully read this joint proxy statement/prospectus and have decided how you wish to vote your shares, please vote your shares promptly so that your shares are represented and voted at the Virginia National special meeting or Fauquier special meeting, as applicable. If you hold your shares in your name as a shareholder of record, you must complete, sign, date and mail your proxy card in the enclosed postage-paid return envelope, or follow the telephone or Internet voting procedures described on the proxy card, as soon as possible. You may also cast your vote online during the Virginia National special meeting or Fauquier special meeting, as applicable. If you hold your shares in “street name” through a broker, bank or other custodian, you must direct your broker, bank or other custodian how to vote in accordance with the instructions you have received from them. “Street name” shareholders who wish to vote online during the Virginia National special meeting or Fauquier special meeting, as applicable, will need to obtain a legal proxy form from the institution that holds their shares and register for the virtual meeting.

 

Q:

What constitutes a quorum for the shareholder meetings?

 

A:

Virginia National: The presence at the Virginia National special meeting, via the Internet or by proxy, of holders of a majority of the outstanding shares of Virginia National common stock entitled to vote at the Virginia National special meeting will constitute a quorum for the transaction of business. Abstentions will be included in determining the number of shares present at the Virginia National special meeting for the purpose of determining the presence of a quorum, but will not be included in determining the number of votes cast with respect to such matter. If a Virginia National shareholder holds shares in “street name” through a broker, bank or other custodian, those shares will not be counted for purposes of determining the presence of a quorum unless the broker, bank or other custodian has been instructed to vote on at least one of the proposals at the Virginia National special meeting.

Fauquier: The presence at the Fauquier special meeting, via the Internet or by proxy, of holders of a majority of the outstanding shares of Fauquier common stock entitled to vote at the Fauquier special meeting will constitute a quorum for the transaction of business. Abstentions will be included in determining the number of shares present at the Fauquier special meeting for the purpose of determining the presence of a quorum, but will not be included in determining the number of votes cast with respect to such matter. If a Fauquier shareholder holds shares in “street name” through a broker, bank or other custodian, those shares will not be counted for purposes of determining the presence of a quorum unless the broker, bank or other custodian has been instructed to vote on at least one of the proposals at the Fauquier special meeting.

 

Q:

What is the vote required to approve each proposal?

 

A:

Virginia National: Approval of the Virginia National merger proposal requires the affirmative vote of at least a majority of the outstanding shares of Virginia National common stock entitled to vote on the merger as of the close of business on January 22, 2021, the record date for the Virginia National special meeting. If you (1) fail to submit a proxy or vote online during the Virginia National special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the Virginia National merger proposal, it will have the same effect as a vote “AGAINST” the proposal. Approval of each of the Virginia National compensation proposal and the Virginia National adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote online during the Virginia National special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the Virginia National compensation proposal or the Virginia National adjournment proposal, it will have no effect on the outcome of the vote on that proposal.

Fauquier: Approval of the Fauquier merger proposal requires the affirmative vote of more than two-thirds of the outstanding shares of Fauquier common stock entitled to vote on the merger as of the close of business on January 22, 2021, the record date for the Fauquier special meeting. If you (1) fail to submit a proxy or vote online during the Fauquier special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the Fauquier merger proposal, it will have the same effect as a vote “AGAINST” the proposal. Approval of each of the Fauquier compensation proposal and the Fauquier adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote online during the Fauquier special meeting, (2) mark

 

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“ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the Fauquier compensation proposal or the Fauquier adjournment proposal, it will have no effect on the outcome of the vote on that proposal.

 

Q:

Why is my vote important?

 

A:

If you do not submit a proxy or vote during the meeting, it may be more difficult for Virginia National or Fauquier to obtain the necessary quorum to hold their respective shareholder meetings. In addition, your failure to submit a proxy or vote during the meeting, failure to instruct your broker, bank or other custodian how to vote, or abstention will have the same effect as a vote “AGAINST” approval of the applicable merger proposal. The Virginia National merger proposal must be approved by the affirmative vote of at least a majority of Virginia National’s outstanding shares entitled to vote on the proposal, and the Fauquier merger proposal must be approved by the affirmative vote of more than two-thirds of Fauquier’s outstanding shares entitled to vote on the proposal.

 

Q:

If my shares are held in “street name” by my broker, bank or other custodian, will my broker, bank or other custodian automatically vote my shares for me?

 

A:

If your shares are held in “street name” in a stock brokerage account or by a bank or other custodian, you should provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other custodian. Please note that you may not vote shares held in street name by returning a proxy card directly to Virginia National or Fauquier or by voting online during your respective company’s shareholder meeting unless you provide a legal proxy, which you must obtain from your broker, bank or other custodian and, in the case of voting online, you register in advance for the appropriate online meeting of shareholders.

Under the rules of applicable securities exchanges, brokers who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from the beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the securities exchanges determine to be “non-routine” without specific instructions from the beneficial owner. We believe that all proposals to be voted on at the shareholder meetings are “non-routine” matters. Broker non-votes occur when a broker or custodian is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.

Virginia National: If you are a Virginia National shareholder and you do not instruct your broker, bank or other custodian on how to vote your shares:

 

   

your broker, bank or other custodian may not vote your shares on the Virginia National merger proposal, which will have the same effect as a vote “AGAINST” such proposal; and

 

   

your broker, bank or other custodian may not vote your shares on the Virginia National compensation proposal or the Virginia National adjournment proposal, which will have no effect on the outcome of the vote on such proposals.

Fauquier: If you are a Fauquier shareholder and you do not instruct your broker, bank or other custodian on how to vote your shares:

 

   

your broker, bank or other custodian may not vote your shares on the Fauquier merger proposal, which will have the same effect as a vote “AGAINST” such proposal; and

 

   

your broker, bank or other custodian may not vote your shares on the Fauquier compensation proposal or the Fauquier adjournment proposal, which will have no effect on the outcome of the vote on such proposals.

 

Q:

What if I fail to vote or abstain from voting?

 

A:

Virginia National: With respect to the Virginia National merger proposal, if you fail to submit a proxy or vote during the Virginia National special meeting, or you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the proposal. With respect to the Virginia National compensation proposal and the Virginia National adjournment proposal, if you fail to submit a proxy or vote during the Virginia National special meeting, or you mark “ABSTAIN” on your proxy, it will have no effect on the outcome of the vote on such proposals.

Fauquier: With respect to the Fauquier merger proposal, if you fail to submit a proxy or vote during the Fauquier special meeting, or you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the proposal. With respect to the Fauquier compensation proposal and the Fauquier adjournment proposal, if you fail to submit a proxy or vote during the Fauquier special meeting, or you mark “ABSTAIN” on your proxy, it will have no effect on the outcome of the vote on such proposals.

 

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Q:

What if I return my proxy card without indicating how to vote?

 

A:

If you complete, sign and return your proxy card without indicating how to vote on any particular proposal, the Virginia National common stock represented by your proxy will be voted as recommended by the Virginia National Board with respect to each Virginia National proposal, or the Fauquier common stock represented by your proxy will be voted as recommended by the Fauquier Board with respect to each Fauquier proposal.

 

Q:

Can I attend the shareholder meeting and vote my shares in person?

 

A:

The Virginia National special meeting and the Fauquier special meeting will be conducted exclusively as virtual meetings of shareholders via live webcast. All shareholders of Virginia National and Fauquier, including shareholders of record and beneficial owners who hold their shares through banks, brokers or other custodians, are invited to attend their respective shareholder meeting.

Virginia National: Holders of record of Virginia National common stock can attend and vote online during the Virginia National special meeting by visiting www.proxydocs.com/VABK. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/VABK prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. If you are a beneficial owner, in addition to registering at www.proxydocs.com/VABK prior to the deadline, you must also obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting. To obtain a legal proxy, please follow the instructions listed on the voting instruction form provided to you.

Fauquier: Holders of record of Fauquier common stock can attend and vote online during the Fauquier special meeting by visiting www.proxydocs.com/FBSS. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/FBSS prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. If you are a beneficial owner, in addition to registering at www.proxydocs.com/FBSS prior to the deadline, you must also obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting. To obtain a legal proxy, please follow the instructions listed on the voting instruction form provided to you.

 

Q:

Can I change my vote?

 

A:

Virginia National: Yes. If you are a holder of record of Virginia National common stock, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) timely submitting a later proxy via the telephone or Internet, (3) delivering a written revocation letter to Virginia National’s corporate secretary or (4) attending the Virginia National special meeting online and voting during the Virginia National special meeting. Attendance at the Virginia National special meeting alone will not automatically revoke your proxy. A revocation or later-dated proxy received by Virginia National after the Virginia National special meeting will be ineffective. Virginia National’s corporate secretary’s mailing address is: 404 People Place, Charlottesville, Virginia 22911, Attention: Corporate Secretary. If you hold your shares in “street name” through a broker, bank or other custodian, you should consult your voting instruction card or contact your broker, bank or other custodian if you want to revoke or change your voting instructions.

Fauquier: Yes. If you are a holder of record of Fauquier common stock, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) timely submitting a later proxy via telephone or the Internet, (3) delivering a written revocation letter to Fauquier’s secretary or (4) attending the Fauquier special meeting online and voting during the Fauquier special meeting. Attendance at the Fauquier special meeting alone will not automatically revoke your proxy. A revocation or later-dated proxy received by Fauquier after the Fauquier special meeting will be ineffective. Fauquier’s secretary’s mailing address is: 10 Courthouse Square, Warrenton, Virginia 20186, Attention: Secretary. If you hold your shares in “street name” through a broker, bank or other custodian, you should consult your voting instruction card or contact your broker, bank or other custodian if you want to revoke or change your voting instructions.

 

Q:

What are the material U.S. federal income tax consequences of the merger to Fauquier shareholders?

 

A:

The merger will qualify as a tax-free “reorganization” within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (“Code”). Accordingly, holders of Fauquier common stock generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of Fauquier common stock for Virginia National common stock in the merger, except to the extent of any cash received in lieu of the issuance of a fractional share of Virginia National common stock. For further information, see “The Merger – Material United States Federal Income Tax Consequences” beginning on page 93.

 

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The U.S. federal income tax consequences described above may not apply to all holders of Fauquier common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.

 

Q:

Are shareholders entitled to dissenters’ or appraisal rights?

 

A:

No. Under Virginia law, shareholders of Virginia National and Fauquier are not entitled to exercise dissenters’ or appraisal rights in connection with the merger.

 

Q:

If I am a Fauquier shareholder, should I send in my Fauquier stock certificates now?

 

A:

No. Please do not send in your Fauquier stock certificates with your proxy. After the merger is completed, the exchange agent, American Stock Transfer and Trust Company, will send you instructions for exchanging your Fauquier stock certificates for the merger consideration. See “The Merger Agreement – Procedures for Exchanging Fauquier Common Stock” beginning on page 96.

 

Q:

Whom may I contact if I cannot locate my Fauquier stock certificate(s)?

 

A:

If you are unable to locate your original Fauquier stock certificate(s), you should contact Fauquier’s transfer agent, American Stock Transfer and Trust Company, at 6201 15th Avenue, Brooklyn, New York 11209 or by telephone at (800) 937-5449.

 

Q:

When do you expect to complete the merger?

 

A:

Virginia National and Fauquier expect to complete the merger in the first half of 2021; however, neither Virginia National nor Fauquier can assure you when or if the merger will occur. In addition to other customary closing conditions provided in the merger agreement, Virginia National and Fauquier must first obtain the approval of Virginia National shareholders and Fauquier shareholders for the merger.

 

Q:

Who may solicit proxies on behalf of Virginia National or Fauquier?

 

A:

Virginia National: In addition to solicitation of proxies by Virginia National by mail, proxies may also be solicited by Virginia National’s directors and employees personally, and by telephone, facsimile, email or other means. Virginia National has also retained Regan & Associates, Inc. to assist in soliciting proxies for a fee of approximately $10,000. For more information on solicitation of proxies in connection with the Virginia National special meeting, see “Virginia National Special Meeting of Shareholders – Solicitation of Proxies” beginning on page 52.

Fauquier: In addition to solicitation of proxies by Fauquier by mail, proxies may also be solicited by Fauquier’s directors and employees personally, and by telephone, facsimile, email or other means. Fauquier has also retained Regan & Associates, Inc. to assist in soliciting proxies for a fee of approximately $15,000. For more information on solicitation of proxies in connection with the Fauquier special meeting, see “Fauquier Special Meeting of Shareholders – Solicitation of Proxies” beginning on page 56.

 

Q:

Whom should I call with questions?

 

A:

Virginia National: If you have any questions concerning the merger or this joint proxy statement/prospectus or would like additional copies of this joint proxy statement/prospectus, please contact Tara Y. Harrison, Virginia National’s chief financial officer, at 404 People Place, Charlottesville, Virginia 22911, or by telephone at (434) 817-8621. If you are a registered shareholder and need help voting your shares of Virginia National common stock , please contact Virginia National’s agent, Mediant Communications, Inc. at (888) 503-0122. If you are a beneficial owner, please contact the broker, bank or other custodian that holds your shares. You may also obtain more information about the merger and the proxy materials by contacting Regan & Associates, Inc., Virginia National’s proxy solicitor, by calling (800) 737-3426 or by writing to Regan & Associates, Inc., 505 Eighth Avenue, Suite 800, New York, New York 10018, Attention: Artie Regan.

Fauquier: If you have any questions concerning the merger or this joint proxy statement/prospectus or would like additional copies of this joint proxy statement/prospectus, please contact Christine E. Headly, Fauquier’s chief financial officer, at 10 Courthouse Square, Warrenton, Virginia 20186, or by telephone at (540) 349-0218. If you need help voting your shares of Fauquier common stock, please contact Fauquier’s transfer agent, American Stock Transfer and Trust Company, at 6201 15th Avenue, Brooklyn, New York 11209 or by telephone at (800) 937-5449. You may also obtain more information about the merger and the proxy materials by contacting Regan & Associates, Inc., Fauquier’s proxy solicitor, by calling (800) 737-3426 or by writing to Regan & Associates, Inc., 505 Eighth Avenue, Suite 800, New York, New York 10018, Attention: Artie Regan.

 

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SUMMARY

This summary highlights selected information from this joint proxy statement/prospectus. It does not contain all of the information that may be important to you. We urge you to read carefully the entire document and the other documents we refer you to so that you may fully understand the merger and the related transactions. Each item in this summary refers to the page of this joint proxy statement/prospectus on which that subject is discussed in more detail.

The Parties

Virginia National Bankshares Corporation (see page 106)

Virginia National is a bank holding company headquartered in Charlottesville, Virginia, providing a wide array of financial services through its wholly-owned subsidiaries, Virginia National Bank, a national banking association, and Masonry Capital Management, LLC (“Masonry Capital”), a registered investment advisor. Virginia National Bank currently operates four full-service banking offices in central Virginia and one full-service office in Winchester, Virginia. As of September 30, 2020, Virginia National had total consolidated assets of approximately $821.0 million, total consolidated loans of approximately $636.9 million, total consolidated deposits of approximately $694.5 million, and consolidated shareholders’ equity of approximately $80.5 million.

The principal executive offices of Virginia National are located at 404 People Place, Charlottesville, Virginia 22911, and its telephone number is (434) 817-8621. Virginia National’s website can be accessed at http://www.vnbcorp.com. Information contained on Virginia National’s website does not constitute part of, and is not incorporated into, this joint proxy statement/prospectus. Virginia National’s common stock is traded on the OTC Markets Group’s OTCQX marketplace under the symbol “VABK.”

Fauquier Bankshares, Inc. (see page 157)

Fauquier is a bank holding company headquartered in Warrenton, Virginia, providing a wide array of financial services through its wholly-owned subsidiary, The Fauquier Bank, a Virginia-chartered commercial bank and member of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Fauquier currently operates eleven full-service banking offices in Fauquier and Prince William Counties in Virginia. As of September 30, 2020, Fauquier had total consolidated assets of approximately $840.3 million, total consolidated loans of approximately $638.1 million, total consolidated deposits of approximately $739.8 million, and consolidated shareholders’ equity of approximately $72.2 million.

The principal executive offices of Fauquier are located at 10 Courthouse Square, Warrenton, Virginia 20186, and its telephone number is (540) 347-2700. Fauquier’s website can be accessed at http://investor.tfb.bank. Information contained on Fauquier’s website does not constitute part of, and is not incorporated into, this joint proxy statement/prospectus. Fauquier’s common stock is traded on The Nasdaq Capital Market under the symbol “FBSS.”

The Merger (see page 58)

The terms and conditions of the merger are contained in the merger agreement, which is attached to this joint proxy statement/prospectus as Appendix A and is incorporated in this joint proxy statement/prospectus by reference. You should read the merger agreement carefully and in its entirety, as it, along with its ancillary documents, is the legal document that governs the merger.

In the merger, Fauquier will merge with and into Virginia National, with Virginia National being the surviving corporation in the merger, pursuant to the terms and conditions of the merger agreement. Under the terms of the merger agreement, each share of Fauquier common stock will be converted into the right to receive 0.675 shares of Virginia National common stock, plus cash in lieu of any fractional shares of Virginia National common stock. The merger agreement also calls for The Fauquier Bank to be merged with and into Virginia National Bank as soon as practicable after the merger of Fauquier into Virginia National.

Closing and Effective Time of the Merger (see page 96)

The merger is currently expected to close in the first half of 2021. The merger will close on either the fifth business day following the completion of the conditions to closing set forth in the merger agreement, or another mutually agreed upon date. The merger will become effective upon the issuance of a certificate of merger by the Virginia State Corporation Commission, or such other date and time as may be set forth in the articles of merger filed with the Virginia State Corporation Commission. Neither Virginia National nor Fauquier can predict, however, the actual date on which the merger will be completed because it is subject to factors beyond each company’s control, including whether or when the parties’ respective shareholders’ approvals and regulatory approvals will be received, if at all.



 

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Merger Consideration (see page 96)

If the merger is completed, each share of Fauquier common stock will be converted into the right to receive 0.675 shares of Virginia National common stock, plus cash in lieu of fractional shares. The exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger.

Virginia National’s shareholders will continue to own their existing shares of Virginia National common stock. Each share of Virginia National common stock will continue to represent one share of common stock of Virginia National following the merger.

Based on the current number of shares of Fauquier common stock outstanding, Virginia National expects to issue approximately 2,564,028 shares of common stock in the aggregate upon completion of the merger, with current Virginia National shareholders owning approximately 51.4% of Virginia National’s outstanding common stock and former Fauquier shareholders owning approximately 48.6% of Virginia National’s outstanding common stock immediately following the merger.

Treatment of Fauquier Equity-Based Awards (see page 97)

As of January 22, 2021, Fauquier had 8,621 shares of restricted stock outstanding that were unvested or contingent, and 17,705 restricted stock units outstanding that were unvested and contingent, in each case granted under an equity or equity-based compensation plan of Fauquier.

Each share of Fauquier restricted stock outstanding immediately prior to the effective time of the merger, which was issued after the date of the merger agreement to a director of Fauquier that will be appointed as a director of Virginia National in connection with the merger, will convert into a fully vested share of restricted stock of Virginia National, and any transferability restrictions on such share of Fauquier restricted stock prior to the effective time will continue to apply after the effective time. Each other share of Fauquier restricted stock outstanding immediately prior to the effective time of the merger will vest and convert into the right to receive the merger consideration payable under the merger agreement.

Each Fauquier restricted stock unit outstanding 10 business days prior to the effective time of the merger will vest and convert into, at the election of the holder, either cash or shares of Fauquier common stock. Any shares of Fauquier common stock issued in settlement of a Fauquier restricted stock unit will be converted at the effective time into the right to receive the merger consideration payable under the merger agreement.

Virginia National Board Recommendations (see page 50)

After careful consideration, the Virginia National Board unanimously recommends that Virginia National shareholders vote “FOR” the Virginia National merger proposal, “FOR” the Virginia National compensation proposal and “FOR” the Virginia National adjournment proposal.

For a more complete description of Virginia National’s reasons for the merger and the recommendation of the Virginia National Board, please see “The Merger – Virginia National’s Reasons for the Merger; Recommendation of the Virginia National Board” beginning on page 64.

Fauquier Board Recommendations (see page 54)

After careful consideration, the Fauquier Board unanimously recommends that Fauquier shareholders vote “FOR” the Fauquier merger proposal, “FOR” the Fauquier compensation proposal and “FOR” the Fauquier adjournment proposal.

For a more complete description of Fauquier’s reasons for the merger and the recommendation of the Fauquier Board, please see “The Merger – Fauquier’s Reasons for the Merger; Recommendation of the Fauquier Board” beginning on page 72.

Opinion of Virginia National’s Financial Advisor (see page 66 and Appendix B)

On September 30, 2020, the Virginia National Board received a written fairness opinion from Performance Trust Capital Partners, LLC (“Performance Trust”), Virginia National’s financial advisor, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Performance Trust as set forth in its opinion, the per share merger consideration pursuant to the merger agreement was fair, from a financial point of view, to holders of Virginia National’s common stock. The full text of Performance Trust’s written opinion is attached as Appendix B to this joint proxy statement/prospectus. Virginia National shareholders should read the entire opinion carefully for a discussion of, among other things, the assumptions made, matters considered and qualifications and limitations on the review undertaken by Performance Trust in rendering its opinion. The references to Performance Trust’s



 

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opinion in this joint proxy statement/prospectus are qualified in their entirety by reference to the full text of Performance Trust’s written opinion.

Performance Trust’s opinion speaks only as of the date of the opinion. The opinion was directed to Virginia National’s board of directors in connection with its consideration of the merger agreement and the merger and does not constitute a recommendation to any shareholder of Virginia National as to how any such shareholder should act or vote at any meeting of shareholders called to consider and vote upon the approval of the merger or in connection with any related matter. Performance Trust’s opinion was directed only to the fairness, from a financial point of view, of the per share merger consideration to holders of Virginia National’s common stock and does not address the underlying business decision of Virginia National to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for Virginia National or the effect of any other transaction in which Virginia National might engage. Performance Trust will not be deemed to have any fiduciary duty to Virginia National’s board of directors, Virginia National or any security holder or creditor of Virginia National or any other person, regardless of any prior or ongoing advice or relationships.

For further information, please see “The Merger – Opinion of Virginia National’s Financial Advisor” beginning on page 66.

Opinion of Fauquier’s Financial Advisor (see page 75 and Appendix C)

At the September 28, 2020 meeting of the Fauquier Board, representatives of Piper Sandler & Co. (“Piper Sandler”) rendered its opinion, dated September 28, 2020, to the Fauquier Board (in its capacity as such), to the effect that, as of such date, the exchange ratio was fair to the holders of Fauquier common stock from a financial point of view. The full text of Piper Sandler’s opinion is attached as Appendix C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler in rendering its opinion. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion. Holders of Fauquier common stock are urged to read the entire opinion carefully in connection with their consideration of the merger.

Piper Sandler’s opinion was directed to the Fauquier Board in connection with its consideration of the merger and the merger agreement and does not constitute a recommendation to any shareholder of Fauquier as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger and the merger agreement. Piper Sandler’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of Fauquier common stock and did not address the underlying business decision of Fauquier to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for Fauquier or the effect of any other transaction in which Fauquier might engage.

For further information, please see “The Merger – Opinion of Fauquier’s Financial Advisor” beginning on page 75.

Interests of Virginia National Directors and Executive Officers in the Merger (see page 85)

Each non-employee director of Virginia National owns unvested shares of restricted stock of Virginia National that will vest if the director ceases to serve on the Virginia National Board within one year following the merger. In addition, certain of Virginia National’s executive officers are parties to management continuity agreements that provide for cash severance payments if the officer’s employment is involuntarily terminated without cause or voluntarily terminated for good reason within two years following the merger. The Virginia National Board was aware of these interests and considered them, among other matters, in approving the merger agreement and making its recommendation on the Virginia National merger proposal.

These interests are discussed in more detail in the “The Merger – Interests of Virginia National Directors and Executive Officers in the Merger” section beginning on page 85.

Interests of Fauquier Directors and Executive Officers in the Merger (see page 86)

In addition to the receipt of merger consideration on the same terms as all other Fauquier shareholders, six of Fauquier’s directors will be appointed to serve on the Virginia National Board and Virginia National Bank board, certain of Fauquier’s executive officers are expected to continue with Virginia National following completion of the merger, certain of Fauquier’s executive officers are expected to receive cash severance payments related to change in control provisions in existing agreements with Fauquier, certain of Fauquier’s executive officers hold restricted stock awards or restricted stock units that will vest on an accelerated basis in connection with the merger, certain of Fauquier’s directors hold shares of Fauquier common stock for which transfer restrictions will lapse at the effective time of the merger, certain of Fauquier’s executive officers have received cash payouts on an accelerated basis for accrued but unused paid time off and certain of Fauquier’s executive officers have received accelerated vesting of restricted stock awards and accelerated vesting and settlement of restricted stock units, and Marc J. Bogan, Fauquier’s president and chief executive officer, has



 

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entered into an employment agreement with Virginia National that will be effective at the closing of the merger. The Fauquier Board was aware of these interests and considered them, among other matters, in approving the merger agreement and making its recommendation on the Fauquier merger proposal.

These interests are discussed in more detail in the “The Merger – Interests of Fauquier Directors and Executive Officers in the Merger” section beginning on page 86.

Material U.S. Federal Income Tax Consequences of the Merger (see page 93)

The merger will qualify as a tax-free “reorganization” within the meaning of Section 368 of the Code. Accordingly, holders of Fauquier common stock generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of Fauquier common stock for Virginia National common stock in the merger, except to the extent of any cash received in lieu of the issuance of a fractional share of Virginia National common stock.

The U.S. federal income tax consequences described above may not apply to all holders of Fauquier common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.

For further information, please see “The Merger – Material United States Federal Income Tax Consequences” beginning on page 93.

No Appraisal or Dissenters’ Rights (page 92)

Under Virginia law, the shareholders of each of Virginia National and Fauquier are not entitled to appraisal or dissenters’ rights in connection with the merger.

Accounting Treatment (see page 93)

The merger will be accounted for under the acquisition method of accounting for business combinations under accounting principles generally accepted in the United States of America (“GAAP”).

Regulatory Approvals (see page 92)

The merger requires various approvals or waivers from bank regulatory authorities, including the Federal Reserve, the Office of the Comptroller of the Currency (the “OCC”) and the Virginia Bureau of Financial Institutions. Approval of the regulators does not constitute an endorsement of the merger or a determination that the terms of the merger are fair to Virginia National shareholders or Fauquier shareholders. As of the date of this joint proxy statement/prospectus, we have received the approval of the Federal Reserve but the other required regulatory approvals have not yet been received. While we do not know of any reason why we would not be able to obtain the necessary regulatory approvals in a timely manner, we cannot be certain when or if we will receive them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to the combined company after completion of the merger.

For a more complete description of the regulatory approvals, please see “The Merger – Regulatory Approvals Required for the Merger” beginning on page 92.

Conditions to Complete the Merger (see page 102)

Virginia National’s and Fauquier’s respective obligations to complete the merger are subject to the fulfillment or waiver of certain conditions, including the following:

 

   

approval of the Virginia National merger proposal and the Fauquier merger proposal by shareholders of Virginia National and Fauquier, respectively;

 

   

approval of the merger by the necessary federal and state regulatory authorities without the imposition of any “burdensome condition” (as defined in the merger agreement);

 

   

Virginia National’s registration statement on Form S-4, of which this joint proxy statement/prospectus is a part, is declared effective by the SEC under the Securities Act and continues to remain effective;



 

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the absence of any order, decree or injunction of a court or regulatory agency that enjoins or prohibits the completion of the merger;

 

   

the accuracy of the other party’s representations and warranties in the merger agreement, subject to the material adverse effect standard in the merger agreement;

 

   

the other party’s performance in all material respects of its obligations under the merger agreement;

 

   

the receipt by Virginia National from Williams Mullen, Virginia National’s outside legal counsel, and the receipt by Fauquier from Troutman Pepper Hamilton Sanders LLP, Fauquier’s outside legal counsel, of written legal opinions to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code; and

 

   

the receipt by Virginia National of resignations of each director of Virginia National that will not continue as a director of Virginia National after the effective time of the merger.

Where the merger agreement and/or law permits, Virginia National and Fauquier could choose to waive a condition to its obligation to complete the merger even if that condition has not been satisfied. Any determination whether to waive any condition to the merger or whether to amend this joint proxy statement/prospectus and resolicit shareholder approval as a result of any such waiver (for example, in the case of a waiver of a material condition such that disclosure previously provided would be materially misleading) will be made by Virginia National or Fauquier, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time. Virginia National and Fauquier cannot be certain when, or if, the conditions to the merger will be satisfied or waived or that the merger will be completed.

No Solicitation (see page 101)

Virginia National and Fauquier have each agreed that, while the merger agreement is in effect, it will not directly or indirectly:

 

   

initiate, solicit, endorse or knowingly encourage or knowingly facilitate any inquiries, proposals or offers with respect to or any inquiry, proposal or offer that is reasonably likely to lead to, an “acquisition proposal” (as defined in the merger agreement);

 

   

furnish any confidential or nonpublic information relating to an acquisition proposal;

 

   

engage or participate in any negotiations or discussions concerning an acquisition proposal; or

 

   

approve, agree to, accept, endorse or recommend, or propose to approve, agree to, accept, endorse or recommend any letter of intent, memorandum of understanding, agreement in principle, merger or acquisition agreement, option agreement or similar agreement relating to an acquisition proposal.

The merger agreement does not, however, prohibit Virginia National or Fauquier from considering an unsolicited bona fide written acquisition proposal from a third party if certain specified conditions are met.

Termination of the Merger Agreement (see page 103)

The merger agreement may be terminated, and the merger abandoned, by Virginia National and Fauquier at any time before the merger is completed if the parties mutually agree to do so. In addition, the merger agreement may be terminated, and the merger abandoned, under the following circumstances:

Termination by Virginia National or Fauquier. The merger agreement may be terminated by either party if:

 

   

the merger has not been completed by September 30, 2021, or such later date as agreed to by the parties in writing, unless the failure to complete the merger by such time was caused by or the result of a breach or failure to perform an obligation under the merger agreement by the terminating party;

 

   

(i) approval of the merger by any necessary federal or state regulatory authority has been denied by such regulatory authority and the denial has become final and nonappealable, (ii) a regulatory authority has requested in writing that Virginia National, Fauquier, or any of their respective subsidiaries withdraw (other than for technical reasons), and not resubmit within 120 days, any application with respect to a required regulatory approval, (iii) a regulatory authority of competent jurisdiction has issued a final, nonappealable injunction permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by the merger agreement unless the denial of such regulatory approval is



 

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due to, or materially contributed to by, the failure of the terminating party to perform or observe the covenants or agreements of such party set forth in the merger agreement, or (iv) any required regulatory approval includes a burdensome condition, provided that a party may only terminate the merger agreement due to the imposition of a burdensome condition if such party has used its reasonable best efforts until the earlier of (A) 60 days following the grant of such regulatory approval containing a burdensome condition, or (B) September 30, 2021, to cause the terms and/or conditions of such burdensome condition to be deleted or removed;

 

   

there is a breach by the other party of any representation, warranty, covenant or agreement contained in the merger agreement that would cause the failure of the closing conditions described above, and the breach cannot be or is not cured within 30 days following written notice to the breaching party; or

 

   

the Virginia National shareholders do not approve the Virginia National merger proposal or the Fauquier shareholders do not approve the Fauquier merger proposal.

Termination by Virginia National. The merger agreement may be terminated by Virginia National if:

 

   

at any time before the Fauquier special meeting, the Fauquier Board (i) fails to recommend to the Fauquier shareholders that they approve the Fauquier merger proposal, (ii) withdraws, modifies or changes its recommendation in any manner adverse to Virginia National, or (iii) approves, adopts, endorses or recommends any acquisition proposal;

 

   

at any time before the Fauquier special meeting, Fauquier fails to comply in all material respects with its obligations under the merger agreement requiring the calling and holding of a meeting of shareholders to consider the Fauquier merger proposal or its obligations regarding the non-solicitation of other competing offers; or

 

   

the Virginia National Board determines to enter into a definitive agreement to accept a “superior proposal” (as defined in the merger agreement) which has been received and considered by the Virginia National Board in accordance with the applicable terms of the merger agreement.

Termination by Fauquier. The merger agreement may be terminated by Fauquier if:

 

   

at any time before the Virginia National special meeting, the Virginia National Board (i) fails to recommend to the Virginia National shareholders that they approve the Virginia National merger proposal, (ii) withdraws, modifies or changes its recommendation in any manner adverse to Fauquier, or (iii) approves, adopts, endorses or recommends any acquisition proposal;

 

   

at any time before the Virginia National special meeting, Virginia National fails to comply in all material respects with its obligations under the merger agreement requiring the calling and holding of a meeting of shareholders to consider the Virginia National merger proposal or its obligations regarding the non-solicitation of other competing offers; or

 

   

the Fauquier Board determines to enter into a definitive agreement to accept a “superior proposal” (as defined in the merger agreement) which has been received and considered by the Fauquier Board in accordance with the applicable terms of the merger agreement.

Termination Fees and Expenses (see page 104)

If either Virginia National or Fauquier takes certain specified, limited actions and the merger agreement is terminated on that basis, that party will immediately owe the other party a $2.5 million termination fee. In addition, a $2.5 million termination fee is payable in certain other circumstances if (i) the merger agreement is terminated for certain specified, limited reasons and (ii) within 12 months of such termination one of the parties enters into a definitive agreement with respect to an acquisition proposal. The termination and payment circumstances are more fully described elsewhere in this joint proxy statement/prospectus.

In general, whether or not the merger is completed, Virginia National and Fauquier will each pay its respective expenses incident to preparing, entering into and carrying out the terms of the merger agreement. The parties will share the costs of printing this joint proxy statement/prospectus all filing fees to the SEC and other governmental authorities.

Virginia National’s Board of Directors and Management Following Completion of the Merger (see page 91)

Pursuant to the merger agreement, at or prior to the effective time of the merger, the Virginia National Board will cause the number of directors that comprise the full Virginia National Board to be fixed at no more than 13 directors. Following the effective time of the merger, the Virginia National Board will consist of (i) seven current Virginia National directors to be designated by



 

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Virginia National (after consultation with Fauquier), including the chairman of the Virginia National Board, William D. Dittmar, Jr., and the president and chief executive officer of Virginia National, Glenn W. Rust (the “Virginia National Directors”), and (ii) six current Fauquier directors to be designated by Fauquier (after consultation with Virginia National), including the chairman of the Fauquier Board, John B. Adams, Jr., and the president and chief executive officer of Fauquier, Marc J. Bogan (the “Fauquier Directors”). Following the merger, Mr. Dittmar will continue to serve as chairman and Mr. Adams will serve as vice chairman of the Virginia National Board. Mr. Adams will also be appointed to the strategic planning committee of the Virginia National Board.

At or prior to the effective time of the merger, the number of directors that comprise the full Virginia National Bank board of directors will also be fixed at 13 and will be composed of the same directors that will be appointed to the Virginia National Board.

Virginia National currently intends to designate Steven W. Blaine, Hunter E. Craig, James T. Holland, Linda M. Houston, and Gregory L. Wells as the remaining five Virginia National directors that will continue as directors of Virginia National and Virginia National Bank following the merger, in addition to Messrs. Dittmar and Rust. Fauquier currently intends to designate Kevin T. Carter, Randolph D. Frostick, Jay B. Keyser and Sterling T. Strange, III as the remaining four Fauquier directors to be appointed as directors of Virginia National and Virginia National Bank following the merger, in addition to Messrs. Adams and Bogan.

Virginia National has agreed to appoint Mr. Bogan as president and chief executive officer of Virginia National Bank effective as of the effective time of the merger. Mr. Rust will continue to serve as president and chief executive officer of Virginia National after the merger. The other executive officers of Virginia National immediately prior to the merger will continue serving in their current positions as the executive officers of Virginia National after the merger.

Amendments to Virginia National’s and Virginia National Bank’s Bylaws (page 92)

In connection with entering into the merger agreement, Virginia National agreed to amend its bylaws to facilitate the change in size and composition of the Virginia National Board following the merger. As described above, the number of directors that will comprise the Virginia National Board is to be fixed at no more than 13 directors, seven of which will be the Virginia National Directors and six of which will be the Fauquier Directors. The bylaws, as amended, will provide that until the second anniversary of the merger, all vacancies on the Virginia National Board created by the cessation of service of a Virginia National Director must be filled by a nominee proposed to the nominating committee of the Virginia National Board by a majority of the remaining Virginia National Directors, and all vacancies on the Virginia National Board created by the cessation of service of a Fauquier Director shall be filled by a nominee proposed to the nominating committee of the Virginia National Board by a majority of the remaining Fauquier Directors. Such bylaw provision may not be modified, amended or repealed during such two-year period other than by a majority of the Fauquier Directors and a majority of the Virginia National Directors. Virginia National Bank’s bylaws will be amended to include similar provisions.

The forms of the above-described bylaw amendments are set forth in their entirety in Exhibits 1.4(a) and 1.4(b) to the merger agreement, which is attached to this joint proxy statement/prospectus as Appendix A.

Virginia National Special Meeting (see page 50)

The Virginia National special meeting is scheduled to take place on Thursday, March 25, 2021 at 10:00 a.m., Eastern Time. The special meeting will be held in a virtual-only meeting format via live webcast that may be accessed by visiting www.proxydocs.com/VABK. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/VABK prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. If you are a beneficial owner, in addition to registering at www.proxydocs.com/VABK prior to the deadline, you must also obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting. At the special meeting, Virginia National shareholders will be asked to vote on:

 

   

the Virginia National merger proposal;

 

   

the Virginia National compensation proposal; and

 

   

the Virginia National adjournment proposal.

Holders of Virginia National common stock as of the close of business on January 22, 2021, are entitled to notice of and to vote at the Virginia National special meeting. As of the record date, there were 2,714,273 shares of Virginia National common stock outstanding and entitled to vote held by approximately 438 holders of record. Each Virginia National shareholder can cast one vote for each share of Virginia National common stock owned on the record date.



 

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Each of Virginia National’s directors has agreed, subject to several conditions and exceptions, to vote all of his or her shares of Virginia National common stock over which the director has the sole right and power to vote or direct the disposition in favor of the Virginia National merger proposal. As of the record date, directors of Virginia National beneficially owned and are entitled to vote 518,659 such shares of Virginia National common stock, or approximately 19.11% of the total voting power of the shares of Virginia National common stock outstanding on that date.

Fauquier Special Meeting (see page 54)

The Fauquier special meeting is scheduled to take place on Thursday, March 25, 2021 at 10:00 a.m., Eastern Time. The special meeting will be held in a virtual-only meeting format via live webcast that may be accessed by visiting www.proxydocs.com/FBSS. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/FBSS prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. If you are a beneficial owner, in addition to registering at www.proxydocs.com/FBSS prior to the deadline, you must also obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting. At the special meeting, Fauquier shareholders will be asked to vote on:

 

   

the Fauquier merger proposal

 

   

the Fauquier compensation proposal; and

 

   

the Fauquier adjournment proposal.

Holders of Fauquier common stock as of the close of business on January 22, 2021, are entitled to notice of and to vote at the Fauquier special meeting. As of the record date, there were 3,798,561 shares of Fauquier common stock outstanding and entitled to vote held by approximately 307 holders of record. Each Fauquier shareholder can cast one vote for each share of Fauquier common stock owned on the record date.

Each of Fauquier’s directors has agreed, subject to several conditions and exceptions, to vote all of his or her shares of Fauquier common stock over which the director has the sole right and power to vote or direct the disposition in favor of the Fauquier merger proposal. As of the record date, directors of Fauquier and their affiliates beneficially owned and are entitled to vote 150,143 such shares of Fauquier common stock, or approximately 3.95% of the total voting power of the shares of Fauquier common stock outstanding on that date.

Required Shareholder Votes (see pages 51 and 55)

Approval of the Virginia National merger proposal requires the affirmative vote of at least a majority of the outstanding shares of Virginia National common stock entitled to vote on the merger as of the close of business on January 22, 2021, the record date for the Virginia National special meeting. If you (1) fail to submit a proxy or vote during the Virginia National special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the proposal to approve the merger agreement, it will have the same effect as a vote “AGAINST” the proposal.

Approval of each of the Virginia National compensation proposal and the Virginia National adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote during the Virginia National special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the Virginia National compensation proposal or the Virginia National adjournment proposal, it will have no effect on the outcome of the vote on that proposal.

Approval of the Fauquier merger proposal requires the affirmative vote of more than two-thirds of the outstanding shares of Fauquier common stock entitled to vote on the merger as of the close of business on January 22, 2021, the record date for the Fauquier special meeting. If you (1) fail to submit a proxy or vote during the Fauquier special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the proposal to approve the merger agreement, it will have the same effect as a vote “AGAINST” the proposal.

Approval of each of the Fauquier compensation proposal and the Fauquier adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote during the Fauquier special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your broker, bank or other custodian how to vote with respect to the Fauquier compensation proposal or the Fauquier adjournment proposal, it will have no effect on the outcome of the vote on that proposal.



 

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No Restrictions on Resale of Virginia National Common Stock Received by Fauquier Shareholders (see page 93)

All shares of Virginia National common stock received by Fauquier shareholders in the merger will be freely tradable, except (i) any restricted shares of Virginia National to be issued to current directors of Fauquier, who will join the Virginia National Board after the merger, in exchange for restricted shares Fauquier issued after September 30, 2020 will be subject to transfer restrictions, and (ii) shares of Virginia National received by persons who are or become affiliates of Virginia National for purposes of Rule 144 under the Securities Act may be resold by them only in transactions permitted by Rule 144, or as otherwise permitted under the Securities Act.

Comparative Rights of Shareholders (see page 196)

The rights of Fauquier shareholders who continue as Virginia National shareholders after the merger will be governed by Virginia law and the articles of incorporation and bylaws of Virginia National, which are different from Fauquier’s existing articles of incorporation and bylaws. For more information, please see “Comparison of Shareholders’ Rights” beginning on page 196.

Risk Factors (see page 32)

Before voting at the shareholder meetings, you should carefully consider all of the information contained in this joint proxy statement/prospectus, including the risk factors set forth in the “Risk Factors” section beginning on page 32.

Recent Financial Developments

Virginia National. For the three months ended December 31, 2020, net income for Virginia National was $2.6 million, or $0.96 per diluted common share, compared to net income of $1.4 million, or $0.53 per diluted common share, for the same period in 2019. For the year ended December 31, 2020, net income for Virginia National was $8.0 million, or $2.94 per diluted common share, compared to $6.7 million, or $2.49 per diluted common share, for 2019. At December 31, 2020, Virginia National had total assets of $848.4 million, net loans of $604.0 million and total deposits of $730.8 million.

Fauquier. For the three months ended December 31, 2020, net income for Fauquier was $1.4 million, or $0.36 per diluted common share, compared to net income of $1.5 million, or $0.41 per diluted common share, for the same period in 2019. For the year ended December 31, 2020, net income for Fauquier was $5.9 million, or $1.55 per diluted common share, compared to $6.8 million, or $1.80 per diluted common share, for 2019. At December 31, 2020, Fauquier had total assets of $867.2 million, net loans of $609.9 million and total deposits of $766.1 million.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF VIRGINIA NATIONAL

The following table sets forth certain of Virginia National’s consolidated financial data as of the end of and for the fiscal years ended December 31, 2019 and 2018 and as of and for the nine months ended September 30, 2020 and 2019. The historical consolidated financial information as of the end of and for the fiscal years ended December 31, 2019 and 2018 is derived from Virginia National’s audited consolidated financial statements. The consolidated financial information as of and for the nine-month periods ended September 30, 2020 and 2019 is derived from Virginia National’s unaudited consolidated financial statements. In Virginia National’s opinion, such unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of its financial position and results of operations for such periods. Interim results for the nine months ended September 30, 2020 are not necessarily indicative of, and are not projections for, the results to be expected for the full year ending December 31, 2020.

The selected historical financial data below is only a summary and should be read in conjunction with Virginia National’s consolidated financial statements and their accompanying notes that are included elsewhere in this joint proxy statement/prospectus (dollars in thousands, except per share data).

 

     Nine Months Ended
September 30,
(Unaudited)
    Year Ended
December 31,
 
     2020     2019     2019     2018  

Results of Operations:

        

Interest income

   $ 19,846     $ 19,586     $ 26,197     $ 25,686  

Interest expense

     2,669       3,083       4,273       2,790  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     17,177       16,503       21,924       22,896  

Provision for loan losses

     1,367       500       1,375       1,873  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     15,810       16,003       20,549       21,023  

Noninterest income

     4,720       4,086       5,551       5,530  

Noninterest expenses

     13,882       13,657       17,884       16,014  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     6,648       6,432       8,216       10,539  

Income tax expense

     1,286       1,174       1,527       2,069  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,362     $ 5,258     $ 6,689     $ 8,470  
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial Condition:

        

Assets

   $ 820,958     $ 660,790     $ 702,627     $ 644,800  

Loans, net of unearned income

     631,601       518,121       535,324       532,299  

Securities

     144,681       79,614       115,724       63,075  

Deposits

     694,521       579,446       621,211       572,533  

Stockholders’ equity

     80,457       75,554       76,107       70,742  

Selected Ratios:

        

Return on average assets (1)

     0.92     1.09     1.02     1.33

Return on average equity (1)

     9.05     9.55     9.02     12.39

Efficiency ratio (2)

     63.40     66.33     65.09     56.34

Net Interest Margin

     3.12     3.66     3.56     3.79

Asset Quality Ratios:

        

ALLL / period end loans

     0.84     0.76     0.78     0.91

ALLL / nonperforming loans

(expressed as a multiple)

     76.20x     7.43x     3.93x     3.24x

NPAs / total assets

     0.01     0.08     0.15     0.23

Net charge-offs / average outstanding loans

     0.04     0.27     0.39     0.19

Capital Ratios:

        

Total risk-based capital ratio

     15.41     15.55     15.08     14.52

Tier 1 risk-based capital ratio

     14.42     14.76     14.28     13.58

Tier 1 leverage ratio

     9.41     11.42     10.81     11.14

Equity to total assets (3)

     9.72     11.33     10.73     10.85


 

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Per Share Data:

        

Earnings per share, basic

   $ 1.98     $ 1.96     $ 2.49     $ 3.18  

Earnings per share, diluted

     1.98       1.96       2.49       3.15  

Cash dividends paid

     0.90       0.90       1.20       1.09  

Book value per common share

     29.64       28.07       28.27       27.81  

Price to earnings ratio, diluted (1)

     16.23       25.21       15.14       10.96  

Price to book value ratio

     0.81 %     1.32 %     1.33 %     1.24 %

Dividend payout ratio

     45.45 %     45.92 %     48.19 %     34.60 %

Weighted average shares outstanding, basic

     2,705,730       2,685,134       2,686,866       2,666,902  

Weighted average shares outstanding, diluted

     2,706,438       2,688,761       2,689,977       2,685,879  

 

(1)

Annualized for the nine months ended September 30, 2020 and 2019.

(2)

The efficiency ratio is calculated by dividing noninterest expense by the sum of net interest income plus noninterest income. This is not presented on a fully-taxable equivalent basis.

(3)

Equity to assets ratio is calculated by dividing period-end common equity less period-end intangibles by period-end assets less period-end intangibles.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF FAUQUIER

The following table sets forth certain of Fauquier’s consolidated financial data as of the end of and for the fiscal years ended December 31, 2019 and 2018 and as of and for the nine months ended September 30, 2020 and 2019. The historical consolidated financial information as of the end of and for the fiscal years ended December 31, 2019 and 2018 is derived from Fauquier’s audited consolidated financial statements. The consolidated financial information as of and for the nine-month periods ended September 30, 2020 and 2019 is derived from Fauquier’s unaudited consolidated financial statements. In Fauquier’s opinion, such unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of its financial position and results of operations for such periods. Interim results for the nine months ended September 30, 2020 are not necessarily indicative of, and are not projections for, the results to be expected for the full year ending December 31, 2020.

The selected historical financial data below is only a summary and should be read in conjunction with Fauquier’s consolidated financial statements and their accompanying notes that are included elsewhere in this joint proxy statement/prospectus (dollars in thousands, except per share data).

 

     Nine Months Ended
September 30,
(Unaudited)
    Year Ended
December 31,
 
     2020     2019     2019     2018  

Results of Operations:

        

Interest income

   $ 20,906     $ 21,821     $ 29,170     $ 26,698  

Interest expense

     2,039       3,413       4,520       3,233  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     18,867       18,408       24,650       23,465  

Provision for loan losses

     1,606       255       346       507  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     17,261       18,153       24,304       22,958  

Noninterest income

     4,036       4,487       5,974       6,074  

Noninterest expenses

     16,163       16,643       22,454       22,151  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     5,134       5,997       7,824       6,881  

Income tax expense

     613       749       1,004       746  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 4,521     $ 5,248     $ 6,820     $ 6,135  
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial Condition:

        

Assets

   $ 840,286     $ 726,339     $ 722,171     $ 730,805  

Loans, net of unearned income

     638,103       545,227       550,226       549,364  

Deposits

     739,834       614,000       622,155       635,638  

Stockholders’ equity

     72,207       65,976       67,122       60,007  

Ratios:

        

Return on average assets (1)

     0.77 %     0.99 %     0.96 %     0.92 %

Return on average equity (1)

     8.59 %     11.07 %     10.64 %     10.64 %

Efficiency ratio (2)

     70.57 %     72.69 %     73.32 %     74.99 %

Common equity to total assets

     8.22 %     8.90 %     9.10 %     8.28 %

Tangible common equity / tangible assets

     8.22 %     8.90 %     9.10 %     8.28 %

Asset Quality:

        

Allowance for loan losses

   $ 6,701     $ 5,395     $ 5,227     $ 5,176  

Nonaccrual loans

   $ 1,245     $ 1,941     $ 989     $ 1,993  

Other real estate owned

   $ 1,356     $ 1,356     $ 1,356     $ 1,356  

ALLL / total outstanding loans

     1.05 %     0.99 %     0.95 %     0.94 %

ALLL / nonperforming loans

     65.18 %     101.30 %     102.57 %     78.65 %

NPAs / total outstanding loans

     1.82 %     1.23 %     1.17 %     1.44 %

Net charge-offs / total average outstanding loans

     0.02 %     0.01 %     0.05 %     0.08 %

Provision / total outstanding loans

     0.25 %     0.05 %     0.06 %     0.09 %


 

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Per Share Data:

        

Earnings per share, basic

   $ 1.19     $ 1.39     $ 1.80     $ 1.63  

Earnings per share, diluted

     1.19       1.38       1.80       1.62  

Cash dividends paid

     0.375       0.36       0.485       0.48  

Book value per common share

     19.03       17.43       17.74       15.90  

Price to earnings ratio, diluted

     9.93       11.19       11.44       13.46  

Price to book value ratio

     83.09 %     119.04 %     116.24 %     137.60 %

Dividend payout ratio

     31.93 %     26.09 %     26.94 %     29.63 %

Weighted average shares outstanding, basic

     3,792,700       3,782,943       3,783,322       3,772,421  

Weighted average shares outstanding, diluted

     3,799,244       3,791,263       3,790,718       3,779,366  

 

(1)

Annualized for the nine months ended September 30, 2020 and 2019.

(2)

The efficiency ratio is calculated by dividing noninterest expense by the sum of net interest income plus noninterest income. This is not presented on a fully-taxable equivalent basis.



 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of Virginia National and Fauquier, as an acquisition by Virginia National of Fauquier using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Fauquier will be recorded by Virginia National at their respective fair values as of the date the merger is completed. Certain reclassifications have been made to the historical financial statements of Fauquier to conform to the presentation in Virginia National’s financial statements.

The unaudited pro forma condensed combined balance sheet gives effect to the merger as if the transaction had occurred on September 30, 2020. The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2020 and the year ended December 31, 2019 give effect to the merger as if the transaction had occurred on January 1, 2019.

A final determination of the fair values of Fauquier’s assets and liabilities, which cannot be made prior to the completion of the merger, will be based on the actual net tangible and intangible assets of Fauquier that exist as of the date of completion of the transaction. Consequently, fair value adjustments and amounts preliminarily allocated to a bargain purchase value or goodwill and identifiable intangibles could change significantly from those allocations used in the unaudited pro forma combined condensed consolidated financial statements presented herein and could result in a material change in amortization of acquired intangible assets.

In connection with the plan to integrate the operations of Virginia National and Fauquier following the completion of the merger, Virginia National anticipates that nonrecurring charges, such as costs associated with systems implementation, severance, and other costs related to exit or disposals activities, will be incurred. Virginia National is not able to determine the timing, nature and amount of these charges as of the date of the joint proxy statement/prospectus, and accordingly, has not included any such costs and changes in the unaudited combined condensed pro forma statements of income except those actually incurred through September 30, 2020. However, these charges will affect the results of operations of Virginia National and Fauquier, as well as those of the combined company following the completion of the merger, in the period in which they are recorded. The unaudited pro forma combined condensed statements of income do not include the effects of the costs associated with any restructuring or integration activities resulting from the merger, as they are nonrecurring in nature and not factually supportable at this time. Additionally, the unaudited pro forma adjustments do not give effect to any nonrecurring or unusual restructuring charges that may be incurred as a result of the integration of the two companies or any anticipated disposition of assets that may result from such integration.

The unaudited pro forma condensed combined financial information included herein is presented for informational purposes only and does not necessarily reflect the financial results of the combined companies had the companies actually been combined at the beginning of the periods presented. The adjustments included in this unaudited pro forma condensed combined financial information are preliminary and may be revised and may not agree to actual amounts recorded by Virginia National upon consummation of the merger. This financial information does not reflect the benefits of the expected cost savings and expense efficiencies, opportunities to earn additional revenue, potential impacts of current market conditions on revenues or asset dispositions, among other factors, and includes various preliminary estimates and may not necessarily be indicative of the financial position or results of operations that would have occurred if the merger had been consummated on the date or at the beginning of the period indicated or which may be attained in the future.

The unaudited pro forma condensed combined financial information should be read in conjunction with and is qualified in its entirety by reference to the historical consolidated financial statements and related notes thereto of Virginia National and its subsidiaries, which are included elsewhere in this joint proxy statement/prospectus, and the historical consolidated financial statements and related notes thereto of Fauquier and its subsidiaries, which are also included elsewhere in this joint proxy statement/prospectus.



 

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VIRGINIA NATIONAL BANKSHARES CORPORATION AND FAUQUIER BANKSHARES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

As of September 30, 2020

(Dollars in thousands)

 

     Virginia
National
(As Reported)
    Fauquier
(As Reported)
    Merger
Pro Forma
Adjustments
    Pro Forma
Combined
 

ASSETS

        

Cash and due from banks

   $ 11,399     $ 10,994     $ —       $ 22,393  

Federal funds and interest-bearing deposits in banks

     273       62,679       —         62,952  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

     11,672       73,673       —         85,345  
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities available for sale, at fair value

     141,245       84,590       —         225,835  

Restricted securities, at cost

     3,436       1,835       —         5,271  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total securities

     144,681       86,425       —         231,106  
  

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage loans held for sale

     —         235       —         235  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans, net of unearned income

     636,935       638,103       (19,650 )(a)      1,255,388  

Less allowance for loan losses

     (5,334     (6,701     6,701 (b)      (5,334
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loans

     631,601       631,402       (12,949     1,250,054  
  

 

 

   

 

 

   

 

 

   

 

 

 

Premises and equipment, net

     5,444       16,790       435 (c)      22,669  

Other real estate owned

     —         1,356       (272 )(d)      1,084  

Core deposit intangibles, net

     —         —         5,010 (e)      5,010  

Goodwill

     372       —         8,197 (f)      8,569  

Other intangible asset, net

     357       —         —         357  

Bank-owned life insurance

     16,739       14,231       —         30,970  

Other assets

     10,092       16,174       1,838 (g)      28,104  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 820,958     $ 840,286     $ 2,259     $ 1,663,503  
  

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES

        

Noninterest-bearing deposits

   $ 190,204     $ 179,650     $ —       $ 369,854  

Interest-bearing deposits:

        

Interest bearing transaction accounts

     135,569       252,627       —         388,196  

Money market accounts and savings accounts

     270,653       235,718       —         506,371  

Time deposits

     98,095       71,839       473 (h)      170,407  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

     504,317       560,184       473       1,064,974  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

     694,521       739,834       473       1,434,828  
  

 

 

   

 

 

   

 

 

   

 

 

 

Long-term borrowings

     40,000       12,629       570 (i)      53,199  

Junior subordinated debt

     —         4,124       (66 )(j)      4,058  

Other liabilities

     5,980       11,492       —         17,472  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     740,501       768,079       977       1,509,557  
  

 

 

   

 

 

   

 

 

   

 

 

 


 

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STOCKHOLDERS’ EQUITY

          

Preferred stock

     —          —          —         —    

Common stock & surplus

     39,099        16,152        57,337 (k)      112,588  

Retained earnings

     40,158        52,885        (52,885 )(k)      40,158  

Accumulated other comprehensive income, net

     1,200        3,170        (3,170 )(k)      1,200  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     80,457        72,207        1,282       153,946  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 820,958      $ 840,286      $ 2,259     $ 1,663,503  
  

 

 

    

 

 

    

 

 

   

 

 

 


 

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VIRGINIA NATIONAL BANKSHARES CORPORATION AND FAUQUIER BANKSHARES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME

For the Nine Months Ended September 30, 2020

(Dollars in thousands, except per share data)

 

     Virginia
National
(As Reported)
     Fauquier
(As Reported)
    Merger
Pro Forma
Adjustments
    Pro Forma
Combined
 

Interest Income

         

Interest and fees on loans

   $ 18,202      $ 19,322     $ 1,823 (l)    $ 39,347  

Interest on federal funds sold and deposits in other banks

     98        113       —         211  

Dividends

     70        84       —         154  

Interest and dividends on securities:

         

Taxable

     1,150        1,081       —         2,231  

Nontaxable

     326        306       —         632  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     19,846        20,906       1,823       42,575  
  

 

 

    

 

 

   

 

 

   

 

 

 

Interest Expense

         

Interest on deposits

     2,634        1,666       —   (m)      4,300  

Interest on long-term borrowings

     35        225       (132 )(n)      128  

Interest on Junior subordinated debt

     —          148       3 (o)      151  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total interest expense

     2,669        2,039       (129     4,579  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income

     17,177        18,867       1,952       37,996  

Provision for loan losses

     1,367        1,606       —         2,973  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     15,810        17,261       1,952       35,023  

Noninterest Income

         

Trust fees and brokerage

     1,317        2,034       —         3,351  

Service charges on deposit accounts

     484        831       —         1,315  

Other service charges, commissions and fees

     435        900       —         1,335  

Mortgage banking income

     77        60       —         137  

Gains on securities transactions, net

     734        —         —         734  

Increase in cash surrender value of life insurance

     327        270       —         597  

Other operating income (loss)

     1,346        (59     —         1,287  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total noninterest income

     4,720        4,036       —         8,756  
  

 

 

    

 

 

   

 

 

   

 

 

 

Noninterest Expense

         

Salaries and benefits

     7,004        8,463       —         15,467  

Occupancy expenses

     1,405        2,406       —         3,811  

Data processing

     968        1,074       —         2,042  

Professional & consulting

     376        875       —         1,251  

FDIC assessment

     89        260       —         349  

Amortization of core deposit premiums

     —          —         806 (p)      806  

Other expenses

     4,040        3,085       592 (q)      7,717  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total noninterest expenses

     13,882        16,163       1,398       31,443  
  

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     6,648        5,134       554       12,336  

Income tax expense

     1,286        613       116 (r)      2,015  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 5,362      $ 4,521     $ 438     $ 10,321  
  

 

 

    

 

 

   

 

 

   

 

 

 


 

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Table of Contents

Earnings per common share, basic

   $ 1.98      $ 1.19        $ 1.95  
  

 

 

    

 

 

      

 

 

 

Earnings per common share, diluted

   $ 1.98      $ 1.19        $ 1.95  
  

 

 

    

 

 

      

 

 

 

Weighted average shares outstanding – Basic

     2,705,730        3,792,700        2,578,567 (s)      5,284,297  

Weighted average shares outstanding – Diluted

     2,706,438        3,799,244        2,578,567 (s)      5,285,005  


 

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Table of Contents

VIRGINIA NATIONAL BANKSHARES CORPORATION AND FAUQUIER BANKSHARES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME

For the Year Ended December 31, 2019

(Dollars in thousands, except per share data)

 

     Virginia
National
(As Reported)
     Fauquier
(As Reported)
     Merger
Pro Forma
Adjustments
    Pro Forma
Combined
 

Interest Income

          

Interest and fees on loans

   $ 24,180      $ 26,398      $ 2,269 (l)    $ 52,847  

Interest on federal funds sold and deposits in other banks

     459        782        —         1,241  

Dividends

     110        166        —         276  

Interest and dividends on securities:

          

Taxable

     1,158        1,465        —         2,623  

Nontaxable

     290        359        —         649  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total interest and dividend income

     26,197        29,170        2,269       57,636  
  

 

 

    

 

 

    

 

 

   

 

 

 

Interest Expense

          

Interest on deposits

     4,184        3,595        (473 )(m)      7,306  

Interest on federal funds purchased

     —          14        —         14  

Interest on long-term borrowings

     —          712        (176 )(n)      536  

Interest on Junior subordinated debt

     89        199        4 (o)      292  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total interest expense

     4,273        4,520        (645     8,148  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net interest income

     21,924        24,650        2,914       49,488  

Provision for loan losses

     1,375        346        —         1,721  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net interest income after provision for loan losses

     20,549        24,304        2,914       47,767  

Noninterest Income

          

Trust fees and brokerage

     2,303        2,196        —         4,499  

Service charges on deposit accounts

     766        1,522        —         2,288  

Other service charges, commissions and fees

     723        1,305        —         2,028  

Mortgage banking income

     189        69        —         258  

Gains on securities transactions, net

     74        79        —         153  

Increase in cash surrender value of life

insurance

     798        366        —         1,164  

Other operating income (loss)

     698        437        —         1,135  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total noninterest income

     5,551        5,974        —         11,525  
  

 

 

    

 

 

    

 

 

   

 

 

 

Noninterest Expense

          

Salaries and benefits

     9,249        12,084        —         21,333  

Occupancy expenses

     1,824        3,402        —         5,226  

Data processing

     1,236        1,381        —         2,617  

Professional & consulting

     771        1,054        —         1,825  

FDIC assessment

     36        190        —         226  

Amortization of core deposit premiums

     —          —          1,253 (p)      1,253  

Other expenses

     4,768        4,343        —         9,111  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total noninterest expenses

     17,884        22,454        1,253       41,591  
  

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes

     8,216        7,824        (1,661     17,701  

Income tax expense

     1,527        1,004        349 (r)      2,880  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income

   $ 6,689      $ 6,820      $ 1,312     $ 14,821  
  

 

 

    

 

 

    

 

 

   

 

 

 


 

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Table of Contents

Earnings per common share, basic

   $ 2.49      $ 1.80        $ 2.81  
  

 

 

    

 

 

      

 

 

 

Earnings per common share, diluted

   $ 2.49      $ 1.80        $ 2.81  
  

 

 

    

 

 

      

 

 

 

Weighted average shares outstanding – Basic

     2,686,866        3,783,322        2,578,567 (s)      5,265,433  

Weighted average shares outstanding – Diluted

     2,689,977        3,790,718        2,578,567 (s)      5,268,544  

NOTE A—BASIS OF PRESENTATION

On September 30, 2020, Virginia National entered into the merger agreement with Fauquier. The merger agreement provides that at the effective time of the merger, each outstanding share of common stock of Fauquier will be converted into the right to receive 0.675 shares of Virginia National common stock.

The unaudited pro forma condensed combined financial information of Virginia National’s financial condition and results of operations, including per share data, are presented after giving effect to the merger. The pro forma financial information assumes that the merger with Fauquier was consummated on January 1, 2019 for purposes of the unaudited pro forma condensed combined statements of income and on September 30, 2020 for purposes of the unaudited pro forma condensed combined balance sheet and gives effect to the merger, for purposes of the unaudited pro forma condensed combined statement of income, as if it had been effective during the entire period presented.

The merger will be accounted for using the acquisition method of accounting; accordingly, the difference between the purchase price over the estimated fair value of the assets acquired (including identifiable intangible assets) and liabilities assumed will be recorded as goodwill, or the difference between the estimated fair value of the assets acquired and liabilities assumed over the purchase price will be recorded as a bargain purchase.

The pro forma financial information includes estimated adjustments to record the assets and liabilities of Fauquier at their respective fair values and represents management’s estimates based on available information. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analysis is performed. The final allocation of the purchase price will be determined after the merger is completed and after completion of a final analysis to determine the fair values of Fauquier’s tangible, and identifiable intangible, assets and liabilities as of the effective time of the merger.

NOTE B—PRO FORMA ADJUSTMENTS

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All adjustments are based on current valuations, estimates, and assumptions. In conjunction with the merger, Virginia National will engage an independent third-party valuation firm to determine the fair value of certain assets acquired and liabilities assumed, which could significantly change the amount of the estimated fair values used in pro forma financial information presented.

 

  (a)

Estimated fair value adjustment consists of a $19.9 million credit mark, offset by a $224 thousand liquidity adjustment, applied to Fauquier’s loans. Of the $19.9 million credit mark, approximately 45%, or $8.8 million, is estimated to be an accretable adjustment.

The credit mark represents 3.1% of Fauquier’s gross loans. Upon closing, an independent valuation will be conducted and the resulting adjustment amortized or accreted using the level yield method. This amount is an estimate of the contractual principal cash flows not expected to be collected over the estimated lives of these loans.

The liquidity mark consists of a $1.9 million discount on the purchased credit impaired loans and a $2.1 million premium on the non-purchased credit impaired loans. The liquidity portion reflects the fair value based upon current interest rates for similar loans. It will be later confirmed by an outside valuation firm. This net adjustment will be amortized as an offset to interest income over the estimated lives of these loans. Estimated amortization in the pro forma financial statements was determined using a level yield method.

 

  (b)

Elimination of Fauquier’s allowance for loan losses. Purchased loans acquired in a business combination are recorded at fair value and the recorded allowance for loan losses of the acquired company is eliminated.

 

  (c)

Estimated fair value adjustment of Fauquier’s premises and equipment. Fair value adjustment for acquired leases is considered to be immaterial at this time.



 

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  (d)

Estimated fair value adjustment on other real estate owned (“OREO”), which represents a mark of 20.1% on Fauquier’s outstanding OREO balance.

 

  (e)

Estimate of the fair value of the core deposit intangible asset. This will be amortized over seven years using the sum of years digits method. This estimate represents a 0.75% premium on Fauquier’s core deposits based on current market data for similar transactions.

 

  (f)

Estimated goodwill as a result of the purchase price exceeding the net assets acquired. (See Note C.)

 

  (g)

Estimated deferred tax asset related to acquisition accounting adjustments.

 

  (h)

Estimated fair value adjustment on time deposits at current market rates and spreads for similar products. This adjustment will be accreted into income over the estimated lives of the deposits of eight months. Estimated accretion was computed using the straight-line method.

 

  (i)

Estimated fair value adjustment of long-term borrowings at current interest rates for similar borrowings. This adjustment will be accreted into income over the estimated life of the borrowings. Estimated accretion was determined using the straight-line method.

 

  (j)

Estimated fair value adjustment of subordinated debt at current interest rates for similar borrowings. This adjustment will be amortized into income over the estimated life of the debt. Estimated amortization was determined using the straight-line method.

 

  (k)

Elimination of Fauquier’s stockholders’ equity as part of the purchase accounting adjustments representing the conversion of all outstanding Fauquier common shares into Virginia National common shares at a ratio of 0.675 Virginia National shares for each share of Fauquier.

 

  (l)

Represents the net discount accretion on acquired loans over their expected life using the level yield method.

 

  (m)

Represents the accretion of the fair value adjustment to deposits over their expected life using the straight-line method.

 

  (n)

Represents the accretion of the fair value adjustment to long-term borrowings over their expected life using the straight-line method.

 

  (o)

Represents the amortization of the fair value adjustment to subordinated debt over its expected life using the straight-line method.

 

  (p)

Represents amortization of core deposit premium (see Note D). Premium will be amortized over seven years using the sum-of-years digits method.

 

  (q)

Represents merger related costs incurred through September 30, 2020.

 

  (r)

Represents income tax expense estimated at 21%.

 

  (s)

Weighted average basic and diluted shares outstanding were adjusted to effect the transaction.



 

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NOTE C—PRO FORMA ALLOCATION OF PURCHASE PRICE

The following table shows the pro forma allocation of the preliminary consideration paid using the closing price of Virginia National common stock of $28.50 on January 28, 2021 for Fauquier’s common stock to the acquired identifiable assets and liabilities assumed and the pro forma goodwill generated from the transaction (unaudited, dollars in thousands):

 

Purchase Price:

     

Fair value of consideration for common stock

      $ 73,001  

Fair value of consideration for restricted stock units

        488  
     

 

 

 

Total pro forma purchase price

      $ 73,489  

Fair value of assets acquired:

     

Cash and cash equivalents

   $ 73,673     

Total securities

     86,425     

Net loans

     618,688     

Premises and equipment, net

     17,225     

OREO

     1,084     

Core deposit intangible, net

     5,010     

Other assets

     32,243     
  

 

 

    

Total assets

   $ 834,348     

Total deposits

     740,307     

Total debt

     17,257     

Other liabilities

     11,492     
  

 

 

    

Total liabilities

   $ 769,056     

Net assets acquired

      $ 65,292  
     

 

 

 

Preliminary pro forma goodwill

      $ 8,197  
     

 

 

 

The following table depicts the sensitivity of the purchase price and resulting goodwill or bargain purchase to changes in the price of Virginia National’s common stock based on the closing price of $28.50 per share on January 28, 2021:

 

Share Price Sensitivity (unaudited, dollars in thousands)

 
     Purchase Price      Estimated Goodwill/
(Bargain Purchase Gain)
 

Up 20%

   $ 88,187      $ 22,895  

Up 10%

   $ 80,838      $ 15,546  

As presented in proforma

   $ 73,489      $ 8,197  

Down 10%

   $ 66,140      $ 848  

Down 20%

   $ 58,791      $ (6,501

NOTE D—ESTIMATED AMORTIZATION/ACCRETION OF ACQUISITION ACCOUNTING ADJUSTMENTS

The following table sets forth an estimate of the expected effects of the estimated aggregate acquisition accounting adjustments reflected in the pro forma combined financial statements on the future pre-tax net income of Virginia National after the merger with Fauquier (unaudited, dollars in thousands):

 

     Discount Accretion (Premium Amortization)  
     For the Years Ended December 31,  
     2021     2022     2023     2024     2025     Thereafter     Total  

Loans

   $ 2,269     $ 2,332     $ 1,503     $ 776     $ 490     $ 1,254     $ 8,624  

Core Deposit Intangible

     (1,253     (1,074     (895     (716     (537     (535     (5,010

Other Fair Value Adjustments

     645       172       172       38       (4     (46     977  

The actual effect of purchase accounting adjustments on the future pre-tax income of Virginia National will differ from these estimates based on the closing date estimates of fair values and the use of different amortization methods than assumed above.



 

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NOTE E—ESTIMATED COST SAVINGS

Estimated cost savings, expected to approximate 31.0% of Fauquier’s annualized pre-tax noninterest expenses, are excluded from the pro forma analysis. Cost savings are estimated to be realized at 60% in the year of the merger and 100% by the end of the year following the year of merger; however, the timing of cost savings realization may be impacted by the COVID-19 pandemic.



 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

The following table shows per common share data regarding basic and diluted net income, book value and cash dividends per share for (1) Virginia National and Fauquier on a historical basis, (2) Virginia National after giving effect to the merger and (3) Fauquier on a pro forma equivalent basis. The pro forma basic and diluted net income per share information was computed as if the merger had been completed on January 1, 2019. The pro forma book value per share information was computed as if the merger had been completed on September 30, 2020.

The Fauquier pro forma equivalent per share amounts are calculated by multiplying the pro forma combined per share amounts by the exchange ratio of 0.675 for the merger consideration so that the per share amounts equate to the respective values for one share of Fauquier common stock.

The following pro forma information has been derived from and should be read in conjunction with Virginia National’s consolidated financial statements and Fauquier’s consolidated financial statements for the year ended December 31, 2019 and the nine-month period ended September 30, 2020, included elsewhere in this joint proxy statement/prospectus. This information is presented for illustrative purposes only. You should not place undue reliance on the pro forma combined or pro forma equivalent amounts as they are not necessarily indicative of the net income per share, book value per share, operating results or financial position that would have occurred if the merger had been completed as of the dates indicated, nor are they necessarily indicative of the future net income per share, book value per share, operating results or financial position of the combined company. The pro forma information, although helpful in illustrating the financial characteristics of Virginia National as the surviving company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring and merger-related costs, or other factors that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. The information below should be read in conjunction with the “Unaudited Pro Forma Condensed Combined Financial Information” section beginning on page 20 and the historical financial information and the notes thereto for Virginia National and Fauquier, included elsewhere in this joint proxy statement/prospectus.

 

     As of and for the
nine months ended
September 30, 2020
     As of and for the
year ended
December 31, 2019
 

Virginia National Historical

     

Net income per common share (basic and diluted)

   $ 1.98      $ 2.49  

Book value per common share (basic and diluted)

     29.64        28.27  

Cash dividends declared per share

     0.90        1.20  

Fauquier Historical

     

Net income per common share (basic and diluted)

   $ 1.19      $ 1.80  

Book value per common share (basic and diluted)

     19.03        17.74  

Cash dividends declared per share

     0.375        0.485  

Pro Forma Combined

     

Net income per common share (basic and diluted)

   $ 1.95      $ 2.81  

Book value per common share (basic and diluted)

     29.09        28.43  

Cash dividends declared per share

     0.90        1.20  

Pro Forma Fauquier Equivalent

     

Net income per common share (basic and diluted)

   $ 1.32      $ 1.90  

Book value per common share (basic and diluted)

     19.63        19.19  

Cash dividends declared per share

     0.61        0.81  


 

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COMPARATIVE MARKET PRICES OF COMMON STOCK

Virginia National common stock is quoted on the OTC Markets Group’s OTCQX marketplace under the symbol “VABK.” As of January 22, 2021, there were 2,714,273 shares of Virginia National common stock outstanding held by 438 holders of record. The closing price of Virginia National common stock on or before September 30, 2020, the last trading day before the public announcement of the signing of the merger agreement, and February 4, 2021, the latest practicable date before the date of this joint proxy statement/prospectus, was $24.10 and $29.30, respectively.

Virginia National has agreed to use its commercially reasonable efforts to cause its common stock, including the shares to be issued in connection with the merger, to be approved for listing on a national exchange. Virginia National intends to apply to list its common stock on a national stock exchange under the trading symbol “VABK” in connection with the merger. Virginia National will be required to meet the initial listing requirements of such exchange to be listed. Virginia National may not be able to meet those initial requirements, and even if Virginia National’s common stock is so listed, Virginia National may be unable to maintain the listing of its common stock in the future. There can be no assurance that a liquid trading market for Virginia National’s common stock will develop or be sustained after the merger.

Fauquier common stock is listed on The Nasdaq Capital Market under the symbol “FBSS.” As of January 22, 2021, there were 3,798,561 shares of Fauquier common stock outstanding held by 307 holders of record. The closing price of Fauquier common stock on September 30, 2020, the last trading day before the public announcement of the signing of the merger agreement, and on February 4, 2021, the latest practicable date before the date of this joint proxy statement/prospectus, was $15.05 and $18.97, respectively. After the completion of the merger, there will be no further trading in Fauquier common stock.

The following table sets forth the closing prices per share of Virginia National common stock as reported on the OTC Markets Group’s OTCQX marketplace on September 30, 2020, the last trading day before Virginia National and Fauquier announced the signing of the merger agreement, and February 4, 2021, the last trading day before the date of this joint proxy statement/prospectus, respectively. The table also sets forth the closing prices per share of Fauquier common stock on The Nasdaq Capital Market on September 30, 2020 and February 4, 2021, respectively. The following table also includes the equivalent price per share of Fauquier common stock on those dates. The equivalent per share price reflects the value on each date of the Virginia National common stock that would have been received by Fauquier shareholders with respect to each share of Fauquier common stock converted into the right to receive the merger consideration, if the merger had been completed on those dates, based on the exchange ratio of 0.675 and the closing prices of Virginia National common stock.

 

     Virginia National
Common Stock
     Fauquier
Common Stock
     Equivalent Market
Value per Share of
Fauquier Common Stock
 

September 30, 2020

   $ 24.10      $ 15.05      $ 16.27  

February 4, 2021

     29.30        18.97        19.78  

The market quotations for Virginia National’s common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

The market value for Virginia National common stock will fluctuate between the time the merger agreement was executed, the date of this joint proxy statement/prospectus, the date of the shareholder meetings and the completion of the merger. No assurance can be given concerning the market price of Virginia National common stock before or after the completion of the merger. Changes in the market price of Virginia National common stock prior to the completion of the merger may affect the market value of the merger consideration that Fauquier shareholders will receive. Because the exchange ratio is fixed, however, the number of shares that Fauquier shareholders receive in the merger will not change. You are advised to obtain current market quotations for Virginia National common stock and Fauquier common stock prior to voting your shares.



 

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RISK FACTORS

The merger, including the issuance of Virginia National common stock and the other transactions contemplated by the merger agreement, involves significant risks. Virginia National shareholders and Fauquier shareholders should carefully read and consider the following factors in deciding whether to vote for the merger proposals.

Risks Related to the Merger

Because the market price of Virginia National common stock will fluctuate, Fauquier shareholders cannot be certain of the market value of the merger consideration that they will receive.

Upon completion of the merger, each share of Fauquier common stock will be converted into the right to receive the merger consideration. The exchange ratio of 0.675 shares of Virginia National common stock for each share of Fauquier common stock is fixed and will not be adjusted to reflect changes in the market price of either the shares of Virginia National common stock or the shares of Fauquier common stock prior to the closing of the merger. As a result, the market value of the merger consideration received by Fauquier shareholders will vary with the market price of Virginia National common stock. Virginia National’s stock price changes as a result of a variety of other factors in addition to the business and relative prospects of Virginia National, including general market and economic conditions, industry trends, market assessment of the likelihood that the merger will be completed as anticipated or at all, and the regulatory environment. These factors are beyond Virginia National’s control. Therefore, at the time of the Fauquier special meeting, holders of Fauquier common stock will not know or be able to calculate the precise market value of the merger consideration they may receive upon completion of the merger, which could be significantly less than the current market value of Virginia National common stock. Fauquier shareholders should obtain market quotations for shares of Virginia National common stock and Fauquier common stock before voting their shares of Fauquier common stock at the Fauquier special meeting.

Combining Virginia National and Fauquier may be more difficult, costly or time-consuming than expected.

The success of the merger will depend, in part, on Virginia National’s ability to realize the anticipated benefits and cost savings from combining the businesses of Virginia National and Fauquier. To realize such anticipated benefits and cost savings, Virginia National must successfully combine the businesses of Virginia National and Fauquier in a manner that permits growth opportunities and cost savings to be realized without materially disrupting the existing customer relationships of Fauquier or Virginia National or decreasing revenues due to loss of customers. If Virginia National is not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully, or at all, or may take longer to realize than expected.

Virginia National and Fauquier have operated, and, until the completion of the merger, will continue to operate, independently. After the completion of the merger, Virginia National will integrate Fauquier’s business into its own. The integration process in the merger could result in one or more of the following: loss of key employees, disruption of each party’s ongoing business, and inconsistencies in standards, controls, procedures and policies that may adversely affect either party’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the merger. The loss of key employees could adversely affect Virginia National’s ability to successfully conduct its business in the markets in which Fauquier now operates, which could have an adverse effect on Virginia National’s financial results and the value of its common stock. If Virginia National experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized, fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be disruptions that cause Virginia National and Fauquier to lose customers or cause customers to withdraw their deposits from Virginia National’s or Fauquier’s banking subsidiaries, or other unintended consequences that could have a material adverse effect on Virginia National’s results of operations or financial condition after the merger. These integration matters could have an adverse effect on each of Virginia National and Fauquier during this transition period and for an undetermined period after consummation of the merger.

The COVID-19 pandemic could have a material adverse effect on the merger.

The spread of COVID-19 throughout the United States, and the measures taken by national, state and local governmental authorities in the United States attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place orders, and limitations on business activity, including closures, are, among other things, restricting economic activity in the United States and the banking markets in which Virginia National and Fauquier operate. These measures have disrupted national and regional supply chains and resulted in declines in asset valuations, increases in unemployment and underemployment levels, declines in liquidity in markets for certain securities, and increases in volatility and periods of disruption in the financial markets, and may continue to have similar effects in the future. It is difficult to predict the impact of the COVID-19 pandemic on the businesses of Virginia National and Fauquier, and there is no guarantee that efforts by Virginia National or Fauquier to address the adverse impacts of the COVID-19 pandemic will be effective. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the continued severity of COVID-19 and actions taken to contain COVID-19 or its impact, among others.

 

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The COVID-19 pandemic could delay and adversely affect the completion of the merger. Each of Virginia National and Fauquier may be required to incur additional costs to remedy disruptions caused by the COVID-19 pandemic. Additional time may be required to process Virginia National’s regulatory applications, and the federal bank regulatory agencies may impose additional requirements on Virginia National or Fauquier that must be satisfied prior to completion of the merger. In addition, some economists and major investment banks have expressed concern that the COVID-19 pandemic could lead to a significant economic recession in the United States. Such a recession and other disruptions in economic and financial markets caused by the COVID-19 pandemic may negatively affect financial institutions for an extended period of time. If such conditions or disruptions continue following completion of the merger, the business, results of operation, financial condition, liquidity and prospects of Virginia National as the surviving corporation in the merger may be adversely affected.

Virginia National and Fauquier will incur significant transaction and merger-related integration costs in connection with the merger.

Virginia National and Fauquier expect to incur significant costs associated with completing the merger and integrating the operations of the two companies. Virginia National and Fauquier are continuing to assess the impact of these costs. Although Virginia National and Fauquier believe that the elimination of duplicate costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

Virginia National may not be able to effectively integrate the operations of The Fauquier Bank and Virginia National Bank.

The future operating performance of Virginia National Bank as the continuing bank after the merger will depend, in part, on the success of the bank merger, which is expected to occur as soon as practicable after the merger. The success of the bank merger will, in turn, depend on a number of factors, including Virginia National’s ability to (i) integrate the operations and branches of The Fauquier Bank and Virginia National Bank, (ii) retain the deposits and customers of The Fauquier Bank and Virginia National Bank, (iii) control the incremental increase in noninterest expense arising from the merger in a manner that enables the continuing bank to improve its overall operating efficiencies and (iv) retain and integrate the appropriate personnel of The Fauquier Bank with the operations of Virginia National Bank. The integration of The Fauquier Bank and Virginia National Bank following the bank merger will require the dedication of the time and resources of the banks’ management team and may temporarily distract the management teams’ attention from the day-to-day business of the banks. If Virginia National Bank and The Fauquier Bank are unable to successfully integrate, Virginia National may not be able to realize expected operating efficiencies and eliminate redundant costs.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are burdensome on Virginia National or Fauquier, not presently anticipated or cannot be met.

Before the transactions contemplated by the merger agreement may be completed, various approvals or waivers must be obtained from bank regulatory authorities, including the Federal Reserve, the OCC, and the Virginia Bureau of Financial Institutions. These regulators may impose conditions on the granting of such approvals or request changes to the terms of the merger. Such conditions or changes and the process of obtaining regulatory approvals or waivers could have the effect of delaying completion of the merger or of imposing additional costs or limitations on Virginia National following the merger. The regulatory approvals or waivers may not be received at all, may not be received in a timely fashion or may contain conditions on the completion of the merger that are burdensome on Virginia National or Fauquier, not anticipated or cannot be met. If the necessary governmental approvals or waivers contain such conditions, the business, financial condition and results of operations of Virginia National following the merger may be materially adversely affected. If the consummation of the merger is delayed, including by a delay in receipt of necessary regulatory approvals or waivers, the business, financial condition and results of operations of Virginia National and Fauquier may be materially adversely affected.

Failure of the merger to be completed, the termination of the merger agreement, or a significant delay in completing the merger could negatively impact Virginia National and Fauquier.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. These conditions to the consummation of the merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the merger is not completed by September 30, 2021, either Virginia National or Fauquier may terminate the merger agreement at any time after that date if the failure of the effective time to occur on or before that date is not caused by any breach of the merger agreement by the party electing to terminate the merger agreement.

Any delay in completion of the merger may have a material adverse effect on Virginia National’s and Fauquier’s business during the pendency of the merger, and on Virginia National’s business and results of operations following the merger, due to potential diversion of management attention from other opportunities, constraints contained in the merger agreement on Fauquier’s

 

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and Virginia National’s respective businesses during the pendency of the merger, the incurrence of additional merger-related expenses, and negative reactions by markets and customers. If the merger is not completed, the ongoing business, financial condition and results of operations of each party may be materially adversely affected and the market price of each party’s common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the merger will be completed.

In addition, Virginia National’s or Fauquier’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. If the merger agreement is terminated and a party’s board of directors seeks another merger or business combination, such party’s shareholders cannot be certain that such party will be able to find another company willing to engage in a merger or business combination on more attractive terms than the merger.

The fairness opinions received by Virginia National and Fauquier in connection with the merger have not been, and are not expected to be, updated to reflect changes in circumstances between the dates of the opinions and the completion of the merger.

The fairness opinions rendered by Performance Trust, financial advisor to Virginia National, on September 30, 2020 and by Piper Sandler, financial advisor to Fauquier, on September 28, 2020, were based upon information available as of that date. Neither opinion reflects changes that may occur or may have occurred after the date on which each respective opinion was delivered, including changes to the operations and prospects of Virginia National or Fauquier, changes in general market and economic conditions, or other changes. Any such changes may alter the relative value of Virginia National or Fauquier or the prices of shares of Virginia National common stock or Fauquier common stock by the time the merger is completed. The opinions do not speak as of the date the merger will be completed or as of any date other than the date of such opinions. For a description of the opinion that the Virginia National Board received from Virginia National’s financial advisor, please see “The Merger – Opinion of Virginia National’s Financial Advisor” beginning on page 66. For a description of the opinion that the Fauquier Board received from Fauquier’s financial advisor, please see “The Merger – Opinion of Fauquier’s Financial Advisor” beginning on page 75.

Certain of Virginia National’s and Fauquier’s directors and executive officers have interests in the merger that differ from the interests of Virginia National’s and Fauquier’s other shareholders.

Virginia National and Fauquier shareholders should be aware that certain of Virginia National’s and Fauquier’s directors and executive officers have interests in the merger that are different from, or in addition to, those of Virginia National and Fauquier shareholders generally. Among other things, each non-employee director of Virginia National owns unvested shares of restricted stock of Virginia National that will vest if the director ceases to serve on the Virginia National Board within one year following the merger, and certain of Virginia National’s executive officers are parties to management continuity agreements that provide for cash severance payments if the officer’s employment is involuntarily terminated without cause or voluntarily terminated for good reason within two years following the merger. In addition, six of Fauquier’s directors will be appointed to serve on the Virginia National Board and Virginia National Bank board, certain of Fauquier’s executive officers are expected to continue with Virginia National following completion of the merger, certain of Fauquier’s executive officers are expected to receive cash severance payments related to change in control provisions in existing agreements with Fauquier, certain of Fauquier’s executive officers hold restricted stock awards or restricted stock units that will vest on an accelerated basis in connection with the merger, certain of Fauquier’s directors hold shares of Fauquier common stock for which transfer restrictions will lapse at the effective time of the merger, certain of Fauquier’s executive officers have received payments on an accelerated basis for accrued but unused paid time off and certain of Fauquier’s executive officers have received accelerated vesting of restricted stock awards and accelerated vesting and settlement of restricted stock units, and Marc J. Bogan, Fauquier’s president and chief executive officer, has entered into an employment agreement with Virginia National that will be effective at the closing of the merger. Each of the Virginia National Board and Fauquier Board was fully informed of these interests and thoroughly considered these interests, among other matters, when making its decision to approve the merger agreement and recommend that its shareholders vote in favor of approving the respective merger proposal. For a more complete description of these interests, see “The Merger – Interests of Virginia National Directors and Executive Officers in the Merger” beginning on page 85 and “The Merger – Interests of Fauquier Directors and Executive Officers in the Merger” beginning on page 86.

The merger agreement limits the ability of Virginia National and Fauquier to pursue alternatives to the merger and might discourage competing offers for a higher price or premium.

The merger agreement contains “no-shop” provisions that, subject to limited exceptions, limit the ability of each of Virginia National and Fauquier to discuss, solicit, facilitate or commit to competing third-party proposals to acquire all or a significant part of Virginia National or Fauquier. In addition, under certain circumstances, if the merger agreement is terminated and either party, subject to certain restrictions, consummates a similar transaction other than the merger, that party must pay the other party a termination fee of $2.5 million.

 

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Each of the members of the Virginia National Board and the Fauquier Board, in his or her capacity as a shareholder of Virginia National or Fauquier, respectively, entered into an affiliate agreement and agreed to vote the shares of Virginia National common stock and Fauquier common stock, as applicable, over which he or she has the sole right and power to vote or direct disposition in favor of the Virginia National merger proposal, in the case of Virginia National, and in favor of the Fauquier merger proposal, in the case of Fauquier, and in each case against alternative transactions. As of the close of business on January 22, 2021, the record date for the Virginia National special meeting and the Fauquier special meeting, shares constituting 19.11% of Virginia National common stock and 3.95% of Fauquier common stock are subject to the affiliate agreements.

Litigation against Virginia National or Fauquier, or the members of the Virginia National Board or Fauquier Board, could prevent or delay the completion of the merger.

Purported shareholder plaintiffs may assert legal claims related to the merger. The results of any such potential legal proceeding would be difficult to predict and such legal proceedings could delay or prevent the merger from being completed in a timely manner. The existence of litigation related to the merger could affect the likelihood of obtaining the required approval from Virginia National’s and Fauquier’s shareholders. Moreover, any litigation could be time consuming and expensive, and could divert attention of Virginia National’s and Fauquier’s respective management teams away from their companies’ regular business. Any lawsuit adversely resolved against Virginia National, Fauquier or members of the Virginia National Board or Fauquier Board, could have a material adverse effect on each party’s business, financial condition and results of operations.

One of the conditions to the consummation of the merger is the absence of any order, decree or injunction (whether temporary, preliminary or permanent) or other action taken by any court of competent jurisdiction that enjoins, prohibits or makes illegal the consummation of the merger. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed and a claimant secures injunctive or other relief that enjoins, prohibits or makes illegal the completion of the merger, then such injunctive or other relief may prevent the merger from being completed in a timely manner or at all.

Virginia National and Fauquier will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees, customers, suppliers and vendors may have an adverse effect on Virginia National and Fauquier. These uncertainties may impair Virginia National’s and Fauquier’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Virginia National and Fauquier to seek to change existing business relationships with Virginia National and Fauquier. Retention of certain employees by Virginia National and Fauquier may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with Virginia National or Fauquier following the merger. Additionally, these uncertainties could cause customers to seek to change existing business relationships with Virginia National or Fauquier or fail to extend an existing relationship with Virginia National or Fauquier. Further, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger. In addition, subject to certain exceptions, Virginia National and Fauquier have each agreed to operate its business in the ordinary course prior to closing and refrain from taking certain specified actions until the merger occurs, which may prevent Virginia National or Fauquier from pursuing attractive business opportunities that may arise prior to completion of the merger. See “The Merger Agreement – Covenants and Agreements” beginning on page 99 for a description of the restrictive covenants applicable to Virginia National and Fauquier.

If the merger is completed, Virginia National and Fauquier shareholders will have less influence on the management and policies of Virginia National following the merger than they had on Virginia National and Fauquier, respectively, prior to the merger.

After the merger is complete, it is anticipated that approximately 48.6% of the shares of Virginia National common stock will be held by former shareholders of Fauquier. In addition, upon consummation of the merger, Virginia National will have 13 directors, six of whom will be former directors of Fauquier. Consequently, shareholders of Virginia National and Fauquier will have less influence on the management and policies of Virginia National after the merger than they now have on the management and policies of Virginia National and Fauquier, respectively.

The merger may distract management of Virginia National and Fauquier from their other responsibilities.

The merger could cause the respective management teams of Virginia National and Fauquier to focus their time and energies on matters related to the transaction that otherwise would be directed to their business and operations. Any such distraction on the part of either company’s management could affect its ability to service existing business and develop new business and adversely affect the business and earnings of Virginia National or Fauquier before the merger, or the business and earnings of Virginia National after the merger.

 

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Risks Related to Virginia National’s Business

The ongoing COVID-19 pandemic and measures intended to prevent its spread may adversely affect Virginia National’s business, financial condition and operations; the extent of such impacts are highly uncertain and difficult to predict.

Global health and economic concerns relating to the COVID-19 pandemic and government actions taken to reduce the spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern the markets in which Virginia National operates, implementing numerous measures to try to contain the virus. These measures, including shelter in place orders and business limitations and shutdowns, have significantly contributed to rising unemployment and negatively impacted consumer and business spending.

The COVID-19 pandemic has adversely impacted and is likely to continue to adversely impact Virginia National’s workforce and operations and the operations of its customers and business partners. In particular, Virginia National may experience adverse effects due to a number of operational factors impacting it or its customers or business partners, including but not limited to: (i) loan losses resulting from financial stress experienced by Virginia National’s borrowers, especially those operating in industries hardest hit by government measures to contain the spread of the virus; (ii) collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; (iii) as a result of the decline in the Federal Reserve’s target federal funds rate, the yield on Virginia National’s assets may decline to a greater extent than the decline in its cost of interest-bearing liabilities, reducing net interest margin and spread, and reducing net income; (iv) operational failures, disruptions or inefficiencies due to changes in Virginia National’s normal business practices necessitated by its internal measures to protect employees and government-mandated measures intended to slow the spread of the virus; (v) possible business disruptions experienced by Virginia National’s vendors and business partners in carrying out work that supports its operations; (vi) decreased demand for Virginia National’s products and services due to economic uncertainty, volatile market conditions and temporary business closures; (vii) potential financial liability, loan losses, litigation costs or reputational damage resulting from Virginia National’s origination of loans as a participating lender in the Paycheck Protection Program (the “PPP”) as administered through the U.S. Small Business Administration (the “SBA”); and (viii) heightened levels of cyber and payment fraud, as cyber criminals try to take advantage of the disruption and increased online activity brought about by the pandemic.

The extent to which the pandemic impacts Virginia National’s business, liquidity, financial condition and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. In addition, the rapidly changing and unprecedented nature of COVID-19 heightens the inherent uncertainty of forecasting future economic conditions and their impact on Virginia National’s loan portfolio, thereby increasing the risk that the assumptions, judgments and estimates used to determine the allowance for loan losses and other estimates are incorrect. Further, Virginia National’s loan deferral program could delay or make it difficult to identify the extent of asset quality deterioration during the deferral period. As a result of these and other conditions, the ultimate impact of the pandemic is highly uncertain and subject to change, and Virginia National cannot predict the full extent of the impacts on its business, its operations or the global economy as a whole. To the extent any of the foregoing risks or other factors that develop as a result of COVID-19 materialize, it could exacerbate the other risk factors discussed in this joint proxy statement/prospectus, or otherwise and materially and adversely affect Virginia National’s business, liquidity, financial condition and results of operations.

Virginia National’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses.

Virginia National assumes credit risk by virtue of making loans and extending loan commitments and letters of credit. Virginia National manages credit risk through a program of underwriting standards, the review of certain credit decisions and a continuous quality assessment process of credit already extended. Virginia National’s exposure to credit risk is managed through the use of consistent underwriting standards that emphasize local lending while avoiding highly leveraged transactions, as well as excessive industry and other concentrations. Virginia National’s credit administration function employs risk management techniques to help ensure that problem loans and leases are promptly identified. While these procedures are designed to provide Virginia National with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.

Virginia National Bank’s allowance for loan losses may be insufficient and any increases in the allowance for loan losses may have a material adverse effect on Virginia National’s financial condition and results of operations.

Virginia National Bank maintains an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents Virginia National Bank’s best estimate of probable losses that will be incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.

 

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The level of the allowance reflects management’s evaluation of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires Virginia National Bank to make significant estimates of current credit risks and future trends, all of which may undergo material changes. The outbreak of COVID-19 and the unprecedented governmental response have made these subjective judgments even more difficult. Although Virginia National Bank believes the allowance for loan losses is a reasonable estimate of known and inherent losses in the loan portfolio, it cannot precisely predict such losses or be certain that the loan loss allowance will be adequate in the future. Deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside Virginia National Bank’s control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies and Virginia National Bank’s auditors periodically review its allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. Further, if charge-offs in future periods exceed the allowance for loan losses, Virginia National Bank will need additional provisions to increase the allowance for loan losses.

Nonperforming assets take significant time to resolve and adversely affect Virginia National’s results of operations and financial condition.

Virginia National’s nonperforming assets adversely affect its net income in various ways. Nonperforming assets, which include nonaccrual loans, were $9 thousand, or less than 0.01% of total assets, as of September 30, 2020. Virginia National had no OREO as of September 30, 2020. When Virginia National receives an asset pledged as collateral through foreclosures and similar proceedings, it is required to record the asset based on the then fair market value of the asset less estimated selling costs. An increased level of nonperforming assets also increases Virginia National’s risk profile and may impact the capital levels regulators believe are appropriate in light of such risks. Virginia National utilizes various techniques such as workouts, restructurings and loan sales to manage problem assets. Increases in, or negative changes in, the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect Virginia National’s business, results of operations and financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including generation of new loans. There can be no assurance that Virginia National will avoid increases in nonperforming loans in the future.

Virginia National’s focus on lending to small to mid-sized community-based businesses may increase its credit risk.

Most of Virginia National’s commercial business and commercial real estate loans are made to small businesses and non-profits. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas in which Virginia National operates negatively impact this important customer sector, Virginia National’s results of operations and financial condition may be adversely affected. Moreover, a portion of these loans have been made by Virginia National in recent years and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the borrowers’ businesses may hinder their ability to repay their loans with Virginia National, which could have a material adverse effect on its financial condition and results of operations.

Virginia National’s concentration in loans secured by real estate may increase its future credit losses, which would negatively affect Virginia National’s financial results.

Virginia National offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Credit risk and credit losses can increase if its loans are concentrated to borrowers who, as a group, may be uniquely or disproportionately affected by economic or market conditions. As of September 30, 2020, approximately 65.7% of Virginia National’s loans and approximately 83.9% of Fauquier’s loans are secured by real estate, both residential and commercial. A major change in the real estate market in the regions in which Virginia National and Fauquier operate, resulting in a deterioration in real estate values, or in the local or national economy, including changes caused by the COVID-19 pandemic, could adversely affect Virginia National’s or Fauquier’s customers’ ability to pay these loans, which in turn could adversely impact Virginia National or Fauquier. Risk of loan defaults and foreclosures are inherent in the banking industry, and Virginia National tries to limit its exposure to this risk by carefully underwriting and monitoring its extensions of credit. Virginia National cannot fully eliminate credit risk, and as a result credit losses may occur in the future.

Virginia National has a moderate concentration of credit exposure in commercial real estate and loans with this type of collateral are viewed as having more risk of default.

As of September 30, 2020, Virginia National had approximately $188.9 million in loans secured by commercial real estate under the Federal Deposit Insurance Corporation (“FDIC”) Call Report instructions and definitions, which represented

 

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approximately 29.7% of total loans outstanding at that date. Such loans consist of non-owner occupied commercial real estate, construction, land development, multi-family and other land loans. As of September 30, 2020, Fauquier had approximately $176.3 million in loans secured by commercial real estate, representing approximately 27.6% of total loans outstanding at that date (note that the $199.8 million of commercial real estate loans reported in Fauquier’s consolidated financial statements for the nine-month period ended September 30, 2020 includes owner-occupied commercial real estate and excludes multi-family, 1-4 family construction and all other construction). These types of loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the property to service the debt. It may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers’ abilities to repay their loans frequently depends on the successful rental of their properties. Cash flows may be affected significantly by general economic conditions, and a sustained downturn in the local economy or in occupancy rates in the local economy where the property is located could increase the likelihood of default. Because Virginia National’s loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in its percentage of nonperforming loans. An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on Virginia National’s financial condition. Virginia National’s banking regulators generally give commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital as a result of commercial real estate lending growth and exposures, which could have a material adverse effect on Virginia National’s results of operations.

A portion of Virginia National’s loan portfolio consists of construction and land development loans, and a decline in real estate values and economic conditions would adversely affect the value of the collateral securing the loans and have an adverse effect on Virginia National’s financial condition.

At September 30, 2020, approximately 2.2% of Virginia National’s loan portfolio, or $23.8 million, and approximately 11.4% of Fauquier’s loan portfolio, or $72.5 million, consisted of construction and land development loans. Construction financing typically involves a higher degree of credit risk than financing on improved, owner-occupied real estate and improved, income producing real estate. Risk of loss on a construction or land development loan is largely dependent upon the accuracy of the initial estimate of the property’s value at completion of construction or development, the marketability of the property, and the bid price and estimated cost (including interest) of construction or development. If the estimate of construction or development costs proves to be inaccurate, Virginia National may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of the value proves to be inaccurate, it may be confronted, at or prior to the maturity of the loan, with a project whose value is insufficient to assure full repayment. When lending to builders and developers, the cost breakdown of construction or development is provided by the builder or developer. Although Virginia National’s underwriting criteria are designed to evaluate and minimize the risks of each construction or land development loan, there can be no guarantee that these practices will have safeguarded against material delinquencies and losses to Virginia National’s operations. In addition, construction and land development loans are dependent on the successful completion of the projects they finance. Loans secured by vacant or unimproved land are generally riskier than loans secured by improved property. These loans are more susceptible to adverse conditions in the real estate market and local economy.

Virginia National’s results of operations are significantly affected by the ability of borrowers to repay their loans.

A significant source of risk for Virginia National is the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most of Virginia National’s loans are secured but some loans are unsecured. With respect to the secured loans, the collateral securing the repayment of these loans may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in economic, environmental and other conditions, including the impacts of the COVID-19 pandemic, declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, terrorist activity, environmental contamination and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when it is not. Virginia National has adopted underwriting and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on Virginia National’s financial condition and results of operations.

Changes in economic conditions, especially in the areas in which Virginia National conducts operations, could materially and negatively affect its business.

Virginia National’s business is directly impacted by economic conditions, legislative and regulatory changes, changes in government monetary and fiscal policies, and inflation, all of which are beyond its control. A deterioration in economic conditions, whether caused by global, national or local concerns (including the COVID-19 pandemic), especially within Virginia National’s

 

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market area, could result in the following potentially material consequences: loan delinquencies increasing; problem assets and foreclosures increasing; demand for products and services decreasing; low cost or noninterest bearing deposits decreasing; and collateral for loans, especially real estate, declining in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans. A continued economic downturn could result in losses that materially and adversely affect Virginia National’s business.

Virginia National may be adversely impacted by changes in market conditions.

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

Asset values also directly impact revenues in Virginia National’s wealth management businesses. Virginia National receives asset-based management fees based on the value of clients’ portfolios or investments in funds managed by Virginia National and, in some cases, Virginia National may also receive performance fees based on increases in the value of such investments. Declines in asset values can reduce the value of clients’ portfolios or fund assets, which in turn can result in lower fees earned for managing such assets.

Virginia National’s business is subject to interest rate risk, and variations in interest rates and inadequate management of interest rate risk may negatively affect financial performance.

Changes in the interest rate environment may reduce Virginia National’s profits. It is expected that Virginia National will continue to realize income from the differential or “spread” between the interest earned on loans, securities, and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. In addition, loan volume and yields are affected by market interest rates on loans, and the current interest rate environment encourages extreme competition for new loan originations from qualified borrowers. Virginia National’s management cannot ensure that it can minimize interest rate risk. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, Virginia National’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Accordingly, changes in levels of market interest rates could materially and adversely affect the net interest spread, asset quality, loan origination volume and Virginia National’s overall profitability.

Following the COVID-19 outbreak, market interest rates have declined significantly. These reductions in interest rates may adversely affect Virginia National’s financial condition and results of operations.

Virginia National’s liquidity needs could adversely affect results of operations and financial condition.

Virginia National’s primary sources of funds are deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including, but not limited to, changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, availability of, and/or access to, sources of refinancing, business closings or lay-offs, pandemics or endemics, inclement weather, natural disasters and international instability. Additionally, deposit levels may be affected by a number of factors, including, but not limited to, rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to customers on alternative investments and general economic conditions. Accordingly, Virginia National may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include Federal Home Loan Bank of Atlanta (“FHLB”) advances, sales of securities and loans, federal funds lines of credit from correspondent banks and borrowings from the Federal Reserve Discount Window, as well as additional out-of-market time deposits and brokered deposits. While Virginia National believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if Virginia National continues to grow and experiences increasing loan demand. Virginia National may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.

 

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Virginia National may need to raise additional capital in the future and may not be able to do so on acceptable terms, or at all.

Access to sufficient capital is critical in order to enable Virginia National to implement its business plan, support its business, expand its operations and meet applicable capital requirements. The inability to have sufficient capital, whether internally generated through earnings or raised in the capital markets, could adversely impact Virginia National’s ability to support and to grow its operations. If Virginia National grows its operations faster than it generates capital internally, it will need to access the capital markets. Virginia National may not be able to raise additional capital in the form of additional debt or equity on acceptable terms, or at all. Virginia National’s ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, Virginia National’s financial condition and its results of operations. Economic conditions and a loss of confidence in financial institutions may increase Virginia National’s cost of capital and limit access to some sources of capital. Further, if Virginia National needs to raise capital in the future, it may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse impact on Virginia National’s business, financial condition and results of operations.

Virginia National operates in a highly regulated industry and the laws and regulations that govern Virginia National’s operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them or Virginia National’s failure to comply with them, may adversely affect Virginia National.

Virginia National is subject to extensive regulation and supervision that govern almost all aspects of its operations. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on Virginia National’s business activities, limit the dividends or distributions that it can pay, restrict the ability of institutions to guarantee its debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in its capital than GAAP. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs.

Virginia National is currently facing increased regulation and supervision of its industry as a result of the financial crisis in the banking and financial markets. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect Virginia National in substantial and unpredictable ways. Such additional regulation and supervision has increased, and may continue to increase, Virginia National’s costs and limit its ability to pursue business opportunities. Further, Virginia National’s failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject it to restrictions on its business activities, fines and other penalties, any of which could adversely affect Virginia National’s results of operations, capital base and the price of its securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect Virginia National’s business and financial condition.

Regulations issued by the Consumer Financial Protection Bureau (the “CFPB”) could adversely impact earnings due to, among other things, increased compliance costs or costs due to noncompliance.

The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. For example, the CFPB issued a final rule, effective January 10, 2014, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms, or to originate “qualified mortgages” that meet specific requirements with respect to terms, pricing and fees. The rule also contains additional disclosure requirements at mortgage loan origination and in monthly statements. The requirements under the CFPB’s regulations and policies could limit Virginia National’s ability to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact Virginia National’s profitability.

Virginia National is subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage Virginia National’s reputation and otherwise adversely affect its business.

Virginia National’s business requires the collection and retention of large volumes of customer data, including personally identifiable information (“PII”) in various information systems that Virginia National maintains and in those maintained by third party service providers. Virginia National also maintains important internal company data such as PII about its employees and information relating to its operations. Virginia National is subject to complex and evolving laws and regulations governing the

 

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privacy and protection of PII of individuals (including customers, employees and other third-parties). For example, Virginia National’s business is subject to the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), which, among other things: (i) imposes certain limitations on Virginia National’s ability to share nonpublic PII about its customers with nonaffiliated third parties; (ii) requires that Virginia National provides certain disclosures to customers about its information collection, sharing and security practices and affords customers the right to “opt out” of any information sharing by it with nonaffiliated third parties (with certain exceptions); and (iii) requires that Virginia National develops, implements and maintains a written comprehensive information security program containing appropriate safeguards based on Virginia National’s size and complexity, the nature and scope of its activities, and the sensitivity of customer information it processes, as well as plans for responding to data security breaches. Various federal and state banking regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach. Ensuring that Virginia National’s collection, use, transfer and storage of PII complies with all applicable laws and regulations can increase Virginia National’s costs. Furthermore, Virginia National may not be able to ensure that customers and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, Virginia National could be exposed to litigation or regulatory sanctions under privacy and data protection laws and regulations. Concerns regarding the effectiveness of Virginia National’s measures to safeguard PII, or even the perception that such measures are inadequate, could cause Virginia National to lose customers or potential customers and thereby reduce its revenues. Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject Virginia National to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage Virginia National’s reputation and otherwise adversely affect its operations, financial condition and results of operations.

Virginia National’s business and earnings are impacted by governmental, fiscal and monetary policy over which it has no control.

Virginia National is affected by domestic monetary policy. The Federal Reserve regulates the supply of money and credit in the United States and its policies determine in large part Virginia National’s cost of funds for lending, investing and capital raising activities and the return it earns on those loans and investments, both of which affect Virginia National’s net interest margin. The actions of the Federal Reserve also can materially affect the value of financial instruments that Virginia National holds, such as loans and debt securities, and also can affect Virginia National’s borrowers, potentially increasing the risk that they may fail to repay their loans. Virginia National’s business and earnings also are affected by the fiscal or other policies that are adopted by various regulatory authorities of the United States. Changes in fiscal or monetary policy are beyond Virginia National’s control and hard to predict.

Changes in accounting standards could impact reported earnings.

The authorities that promulgate accounting standards, including the Financial Accounting Standards Board (“FASB”), the SEC and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of Virginia National’s consolidated financial statements. These changes are difficult to predict and can materially impact how Virginia National records and reports its financial condition and results of operations. In some cases, Virginia National could be required to apply a new or revised standard retroactively, resulting in the restatement of financial statements for prior periods. Such changes could also require Virginia National to incur additional personnel or technology costs.

Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on Virginia National’s results of operation and financial condition.

Effective internal and disclosure controls are necessary for Virginia National to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. Virginia National Bank is also required to establish and maintain an adequate internal control structure over financial reporting pursuant to regulations of the FDIC. As a public company, Virginia National is required by the Sarbanes-Oxley Act to design and maintain a system of internal control over financial reporting and include management’s assessment regarding internal control over financial reporting. If Virginia National cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of Virginia National’s ongoing monitoring of internal control, it may discover material weaknesses or significant deficiencies in its internal control that require remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Virginia National’s inability to maintain the operating effectiveness of the controls described above could result in a material misstatement to Virginia National’s financial statements or other disclosures, which could have an adverse effect on its business, financial condition or results of operations. In addition, any failure to maintain effective controls or to timely effect any necessary improvement of Virginia National’s internal and disclosure controls could, among other things, result in losses from fraud or error,

 

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harm Virginia National’s reputation or cause investors to lose confidence in its reported financial information, all of which could have a material adverse effect on its results of operation and financial condition.

Virginia National qualifies as a “smaller reporting company,” and the reduced disclosure obligations applicable to smaller reporting companies may make its common stock less attractive to investors.

Virginia National, like Fauquier, is a “smaller reporting company,” as defined in federal securities laws, and will remain a smaller reporting company until the fiscal year following the determination that the market value of its voting and non-voting common shares held by non-affiliates is more than $250 million measured on the last business day of its second fiscal quarter, or its annual revenues are less than $100 million during the most recently completed fiscal year and the market value of its voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last business day of its second fiscal quarter. Smaller reporting companies have reduced disclosure obligations, such as an exemption from providing selected financial data and an ability to provide simplified executive compensation information and only two years of audited financial statements. If some investors find Virginia National’s common stock less attractive because Virginia National may rely on these reduced disclosure obligations, there may be a less active trading market for its common stock and its stock price may be more volatile.

Virginia National faces strong and growing competition from financial services companies and other companies that offer banking and other financial services, which could negatively affect Virginia National’s business.

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

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain loans and deposits, and range and quality of products and services provided, including new technology-driven products and services. If Virginia National is unable to attract and retain banking customers, it may be unable to continue to grow loan and deposit portfolios and its results of operations and financial condition may otherwise be adversely affected.

Virginia National may not be able to successfully manage its long-term growth, which may adversely affect its results of operations and financial condition.

A key aspect of Virginia National’s long-term business strategy is its continued growth and expansion. Virginia National’s ability to continue to grow depends, in part, upon its ability to (i) open new branch offices or acquire existing branches or other financial institutions, (ii) attract deposits to those locations, and (iii) identify attractive loan and investment opportunities.

Virginia National may not be able to successfully implement its growth strategy if it is unable to identify attractive markets, locations or opportunities to expand in the future, or if Virginia National is subject to regulatory restrictions on growth or expansion of its operations. Virginia National’s ability to manage its growth successfully also will depend on whether it can maintain capital levels adequate to support its growth, maintain cost controls and asset quality and successfully integrate any businesses Virginia National acquires into its organization. As Virginia National identifies opportunities to implement its growth strategy by opening new branches or acquiring branches or other banks, it may incur increased personnel, occupancy and other operating expenses. In the case of new branches, Virginia National must absorb those higher expenses while it begins to generate new deposits, and there is a further time lag involved in redeploying new deposits into attractively priced loans and other higher yielding assets.

Virginia National may consider acquiring other businesses or expanding into new product lines that it believes will help it fulfill its strategic objectives. Virginia National expects that other banking and financial companies, some of which have significantly greater resources, will compete with it to acquire financial services businesses. This competition could increase prices for potential acquisitions that Virginia National believes are attractive. Acquisitions may also be subject to various regulatory approvals. If Virginia National fails to receive the appropriate regulatory approvals, it will not be able to consummate acquisitions that it believes are in its best interests.

When Virginia National enters into new markets or new lines of business, its lack of history and familiarity with those markets, clients and lines of business may lead to unexpected challenges or difficulties that inhibit its success. Virginia National’s plans to expand could depress earnings in the short run, even if it efficiently executes a growth strategy leading to long-term financial benefits.

 

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Virginia National depends on the accuracy and completeness of information about clients and counterparties and Virginia National’s financial condition could be adversely affected if it relies on misleading or incorrect information.

In deciding whether to extend credit or to enter into other transactions with clients and counterparties, Virginia National may rely on information furnished to it by or on behalf of clients and counterparties, including financial statements and other financial information, which it does not independently verify. Virginia National also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, Virginia National may assume that a client’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of that client. Virginia National’s financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading.

Virginia National’s success depends on its management team, and the unexpected loss of any of these personnel could adversely affect operations.

Virginia National’s success is, and is expected to remain, highly dependent on its management team, including current Fauquier officers that will join the management team in connection with the merger. This is particularly true because, as a community bank, Virginia National depends on the management team’s ties to the community and customer relationships to generate business. Virginia National’s growth will continue to place significant demands on management, and the loss of any such person’s services may have an adverse effect upon growth and profitability. If Virginia National fails to retain or continue to recruit qualified employees, growth and profitability could be adversely affected.

The success of Virginia National’s strategy depends on its ability to identify and retain individuals with experience and relationships in its markets.

In order to be successful, Virginia National must identify and retain experienced key management members and sales staff with local expertise and relationships. Competition for qualified personnel is intense and there is a limited number of qualified persons with knowledge of and experience in the community banking and mortgage industry in Virginia National’s chosen geographic market. Even if Virginia National identifies individuals that it believes could assist it in building its franchise, it may be unable to recruit these individuals away from their current employers. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out Virginia National’s strategy is often lengthy. Virginia National’s inability to identify, recruit and retain talented personnel could limit its growth and could materially adversely affect its business, financial condition and results of operations.

Virginia National relies on other companies to provide key components of its business infrastructure.

Third parties provide key components of Virginia National’s business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While Virginia National has selected these third-party vendors carefully, it does not control their actions. Any problem caused by these third parties, including poor performance of services, failure to provide services, disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect Virginia National’s ability to deliver products and services to its customers and otherwise conduct its business, and may harm its reputation. Financial or operational difficulties of a third-party vendor could also hurt Virginia National’s operations if those difficulties interfere with the vendor’s ability to serve Virginia National. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third-parties creates an unavoidable inherent risk to Virginia National’s business operations.

The soundness of other financial institutions could adversely affect Virginia National.

Virginia National’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Virginia National has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by Virginia National or by other institutions. Many of these transactions expose Virginia National to credit risk in the event of default of its counterparty or client. In addition, credit risk may be exacerbated when the collateral held cannot be realized upon or is liquidated at prices insufficient to recover the full amount of the financial instrument exposure due. There is no assurance that any such losses would not materially and adversely affect results of operations.

Virginia National is subject to a variety of operational risks, including reputational risk, legal and compliance risk, and the risk of fraud or theft by employees or outsiders.

 

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Virginia National is exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees, operational errors, clerical or record-keeping errors, and errors resulting from faulty or disabled computer or communications systems.

Reputational risk, or the risk to Virginia National’s earnings and capital from negative public opinion, could result from Virginia National’s actual or alleged conduct in any number of activities, including lending practices, corporate governance, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect Virginia National’s ability to attract and keep customers and employees and can expose it to litigation and regulatory action.

Further, if any of Virginia National’s financial, accounting, or other data processing systems fail or have other significant issues, Virginia National could be adversely affected. Virginia National depends on internal systems and outsourced technology to support these data storage and processing operations. Virginia National’s inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of Virginia National’s business operations. It could be adversely affected if one of its employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates its operations or systems. Virginia National is also at risk of the impact of natural disasters, terrorism and international hostilities on its systems and from the effects of outages or other failures involving power or communications systems operated by others. Virginia National may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or communications outages), which may give rise to disruption of service to customers and to financial loss or liability. In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although Virginia National has policies and procedures in place to verify the authenticity of its customers, it cannot guarantee that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to Virginia National’s reputation. If any of the foregoing risks materialize, it could have a material adverse effect on Virginia National’s business, financial condition and results of operations.

Virginia National may be required to transition from the use of the London Interbank Offered Rate (“LIBOR”) index in the future.

Virginia National has certain variable-rate loans indexed to LIBOR to calculate the loan interest rate. The United Kingdom Financial Conduct Authority, which regulates LIBOR, has announced that the continued availability of the LIBOR on the current basis is not guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR, and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based variable-rate loans, as well as LIBOR-based securities, subordinated notes, trust preferred securities, or other securities or financial arrangements. The implementation of a substitute index or indices for the calculation of interest rates under Virginia National’s loan agreements with borrowers or other financial arrangements may cause Virginia National to incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers or other counter-parties over the appropriateness or comparability to LIBOR of the substitute index or indices, any of which could have a material adverse effect on Virginia National’s results of operations.

Virginia National’s operations may be adversely affected by cyber security risks.

In the ordinary course of business, Virginia National collects and stores sensitive data, including proprietary business information and PII related to its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to operations and Virginia National’s business strategy. Virginia National has invested in accepted technologies, and continually reviews processes and practices that are designed to protect its networks, computers, and data from damage or unauthorized access. Despite these security measures, Virginia National’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to Virginia National’s reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, Virginia National may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities.

In addition, multiple major U.S. retailers have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information and other financial or privileged data. Retailer incursions affect cards issued and deposit accounts maintained by many banks, including Virginia National Bank. Although Virginia National’s systems are not

 

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breached in retailer incursions, these events can cause it to reissue a significant number of cards and take other costly steps to avoid significant theft loss to Virginia National and its customers. In some cases, Virginia National may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within Virginia National’s control include internet service providers, electronic mail portal providers, social media portals, distant-server (cloud) service providers, electronic data security providers, data processing service providers, telecommunications companies, and smart phone manufacturers.

Consumers may increasingly decide not to use banks to complete their financial transactions, which would have a material adverse impact on Virginia National’s financial condition and operations.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on Virginia National’s financial condition and results of operations.

Virginia National’s ability to operate profitably may be dependent on its ability to integrate or introduce various technologies into its operations.

The market for financial services, including banking and consumer finance services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, online banking and tele-banking. Virginia National’s ability to compete successfully in its market may depend on the extent to which it is able to implement or exploit such technological changes. If Virginia National is not able to afford such technologies, properly or timely anticipate or implement such technologies, or effectively train its staff to use such technologies, its business, financial condition or operating results could be adversely affected.

Virginia National relies upon independent appraisals to determine the value of the real estate that secures a significant portion of its loans and the value of any foreclosed properties that may be carried on its books, and the values indicated by such appraisals may not be realizable if it is forced to foreclose upon such loans or liquidate such foreclosed property.

As indicated above, a significant portion of Virginia National’s loan portfolio consists of loans secured by real estate and it may also hold foreclosed properties from time to time. Virginia National relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment that adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of Virginia National’s loans and any foreclosed properties that may be held by Virginia National may be more or less valuable than anticipated. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, Virginia National may not be able to recover the outstanding balance of the loan. It may also be unable to sell any foreclosed properties for the values estimated by their appraisals.

Virginia National is exposed to risk of environmental liabilities with respect to properties to which it takes title.

In the course of its business, Virginia National may foreclose and take title to real estate, potentially becoming subject to environmental liabilities associated with the properties. Virginia National may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs or Virginia National may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. Costs associated with investigation or remediation activities can be substantial. If Virginia National is the owner or former owner of a contaminated site, it may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect Virginia National’s business.

Risks Related to Virginia National’s Common Stock

Virginia National is not obligated to pay dividends and its ability to pay dividends is limited.

Virginia National’s ability to make dividend payments on its common stock depends primarily on certain regulatory considerations and the receipt of dividends and other distributions from Virginia National Bank. There are various regulatory restrictions on the ability of banks, such as Virginia National Bank, to pay dividends or make other payments to their holding companies. Virginia National is currently paying a quarterly cash dividend to holders of its common stock at a rate of $0.30 per share. Although Virginia National has paid a quarterly cash dividend to the holders of its common stock since July 2013, holders of its common stock are not entitled to receive dividends, and Virginia National is not obligated to pay dividends in any particular amounts or at any particular times. Regulatory, economic and other factors may cause the Virginia National Board to consider,

 

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among other things, the reduction of dividends paid on its common stock. See “Description of Virginia National Capital Stock” on page 192.

Future issuances of Virginia National’s common stock could adversely affect the market price of the common stock and could be dilutive.

The Virginia National Board, without the approval of shareholders, could from time to time decide to issue additional shares of common stock or shares of preferred stock, which may adversely affect the market price of the shares of common stock and could be dilutive to Virginia National shareholders. Any sale of additional shares of Virginia National common stock may be at prices lower than the current market value of Virginia National’s shares. In addition, new investors may have rights, preferences and privileges that are senior to, and that could adversely affect, Virginia National’s existing shareholders. For example, preferred stock would be senior to common stock in right of dividends and as to distributions in liquidation. Virginia National cannot predict or estimate the amount, timing, or nature of its future offerings of equity securities. Thus, Virginia National shareholders bear the risk of future offerings diluting their stock holdings, adversely affecting their rights as shareholders, and/or reducing the market price of Virginia National common stock.

Virginia National common stock currently has a limited trading market and is thinly traded, and a more liquid market for its common stock may not develop after the merger, which may limit the ability of shareholders to sell their shares and may increase price volatility.

Virginia National’s common stock is quoted on the OTC Markets Group’s OTCQX marketplace under the symbol “VABK.” Virginia National common stock is thinly traded and has substantially less liquidity than the trading markets for many other bank holding companies. Although Virginia National intends to apply to list its common stock on a national stock exchange in connection with the merger, Virginia National will be required to meet the initial listing requirements of such exchange to be listed. Virginia National may not be able to meet those initial listing requirements, and even if Virginia National’s common stock is so listed, Virginia National may be unable to maintain the listing of its common stock in the future. In addition, there can be no assurance that an active trading market for shares of Virginia National’s common stock will develop or if one develops, that it can be sustained following the merger. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within Virginia National’s control. Therefore, Virginia National’s shareholders may not be able to sell their shares at the volume, prices, or times that they desire. Shareholders should be financially prepared and able to hold shares for an indefinite period. In addition, thinly traded stocks can be more volatile than more widely traded stocks. Virginia National’s stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors include, but are not limited to, changes in analysts’ recommendations or projections, developments related to Virginia National’s business and operations, stock performance of other companies deemed to be peers, news reports of trends, concerns, irrational exuberance on the part of investors, and other issues related to the financial services industry. Virginia National’s stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to its performance. General market declines or market volatility in the future, especially in the financial institutions sector of the economy, could adversely affect the price of Virginia National’s common stock, and the current market price may not be indicative of future market prices.

Virginia National’s governing documents and Virginia law contain provisions that may discourage or delay an acquisition of Virginia National even if such acquisition or transaction is supported by shareholders.

Certain provisions of Virginia National’s articles of incorporation could delay or make a merger, tender offer or proxy contest involving Virginia National more difficult, even in instances where the shareholders deem the proposed transaction to be beneficial to their interests. One provision, among others, provides that a plan of merger, share exchange, or sale of all or substantially all of Virginia National’s assets must be approved by the affirmative vote of more than two-thirds of the outstanding capital stock of Virginia National entitled to vote on the transaction if the transaction is not approved and recommended by at least two-thirds of the Virginia National Board. In addition, certain provisions of state and federal law may also have the effect of discouraging or prohibiting a future takeover attempt in which Virginia National shareholders might otherwise receive a substantial premium for their shares over then-current market prices. To the extent that these provisions discourage or prevent takeover attempts, they may tend to reduce the market price for Virginia National’s common stock.

An investment in Virginia National common stock is not an insured deposit.

Virginia National’s common stock is not a bank deposit and, therefore, it is not insured against loss by the FDIC or by any other public or private entity. An investment in Virginia National common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this joint proxy statement/prospectus and is subject to the same market forces that affect the price of common stock in any company and, as a result, shareholders may lose some or all of their investment.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This joint proxy statement/prospectus reflects the current views and estimates of future economic circumstances, industry conditions, company performance, and financial results of the management teams of Virginia National and Fauquier. These forward-looking statements are subject to a number of risks and uncertainties which could cause Virginia National’s or Fauquier’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements, and such differences may be material. Forward-looking statements speak only as of the date they are made and Virginia National and Fauquier do not assume any duty to update forward-looking statements. These forward-looking statements include, but are not limited to, statements about (i) the expected benefits of the merger between Virginia National and Fauquier, including future financial and operating results, cost savings, enhanced revenues and the expected market position of the combined company that may be realized from the merger, and (ii) Virginia National’s and Fauquier’s plans, objectives, expectations and intentions and other statements contained in this joint proxy statement/prospectus that are not historical facts. Other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “targets,” “projects,” “predicts,” “potential,” “possible,” “should,” “would,” “will,” “goal,” “target” or words of similar meaning generally are intended to identify forward-looking statements. These statements are based upon the current beliefs and expectations of Virginia National’s and Fauquier’s management teams and are inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond their respective control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ from those indicated or implied in the forward-looking statements and such differences may be material.

The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

   

fluctuations in the market price of Virginia National common stock and the related effect on the market value of the merger consideration that Fauquier shareholders will receive upon completion of the merger;

 

   

the expected cost savings from the merger may not be fully realized or may take longer to realize than expected;

 

   

the integration of the businesses of Virginia National and Fauquier may be more difficult, costly or time-consuming than expected, and could result in the loss of customers;

 

   

regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met;

 

   

a significant delay in the completion of the merger could negatively affect Virginia National and Fauquier as a combined company;

 

   

the fairness opinions of Virginia National’s and Fauquier’s advisors have not been, and are not expected to be, updated to reflect changes in circumstances between the date of the opinions and the shareholder meetings or the completion of the merger;

 

   

if the merger is completed, Virginia National and Fauquier shareholders will have less influence on the management and policies of Virginia National than they had on Virginia National and Fauquier, respectively, independently before the merger;

 

   

business uncertainties and contractual restrictions while the merger is pending;

 

   

distraction of Virginia National and Fauquier management as a result of the merger;

 

   

the strength of the United States economy in general and the strength of the local economies in which Virginia National and Fauquier conduct operations;

 

   

geopolitical conditions, including acts or threats of terrorism, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;

 

   

the effects of the COVID-19 pandemic, including the adverse impact on Virginia National’s and Fauquier’s business and operations and on their respective customers which may result, among other things, in increased delinquencies, defaults, foreclosures and losses on loans;

 

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the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events;

 

   

Virginia National’s and Fauquier’s management of risks inherent in their respective real estate loan portfolios, and the risk of a prolonged downturn in the real estate market, which could impair the value of collateral and Virginia National’s and Fauquier’s ability to sell collateral upon any foreclosure;

 

   

changes in consumer spending and savings habits;

 

   

technological and social media changes;

 

   

the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rate, market and monetary fluctuations;

 

   

changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or Virginia National Bank or The Fauquier Bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;

 

   

the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;

 

   

the impact of changes in laws, regulations and policies affecting the real estate industry;

 

   

the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (the “FASB”) or other accounting standards setting bodies;

 

   

the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

 

   

the willingness of users to substitute competitors’ products and services for Virginia National’s and Fauquier’s products and services;

 

   

the effect of acquisitions Virginia National may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

 

   

changes in the level of Virginia National’s and Fauquier’s nonperforming assets and charge-offs;

 

   

Virginia National’s and Fauquier’s involvement, from time to time, in legal proceedings and examination and remedial actions by regulators;

 

   

potential exposure to fraud, negligence, computer theft and cyber-crime;

 

   

Virginia National’s ability to pay dividends;

 

   

Virginia National’s involvement as a participating lender in the PPP as administered through the SBA;

 

   

increased information security risk, including cybersecurity risk, which may lead to potential business disruptions or financial losses;

 

   

volatility in the securities markets generally or in the market price of Virginia National’s stock specifically; and

 

   

other risks and factors identified in this joint proxy statement/prospectus in the “Risk Factors” section beginning on page 32.

 

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All of the forward-looking statements made in this joint proxy statement/prospectus are expressly qualified by the cautionary statements contained herein. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on Virginia National, Fauquier, or their respective businesses or operations. Readers are cautioned not to rely too heavily on the forward-looking statements contained in this joint proxy statement/prospectus. Forward-looking statements speak only as of the date they are made and neither Virginia National nor Fauquier undertakes any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events, passage of time or otherwise.

 

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VIRGINIA NATIONAL SPECIAL MEETING OF SHAREHOLDERS

General

This section contains information about the Virginia National special meeting that has been called to vote upon the matters described below.

Virginia National is mailing this joint proxy statement/prospectus on or about February 9, 2021, to holders of shares of Virginia National common stock at the close of business on January 22, 2021, which is the record date for the Virginia National special meeting. Together with this joint proxy statement/prospectus, Virginia National is also sending a notice of the Virginia National special meeting and a form of proxy that is solicited by the Virginia National Board for use at the Virginia National special meeting to be held on March 25, 2021 at 10:00 a.m., Eastern Time, as a virtual meeting, and at any adjournment or postponement of that meeting. The special meeting will be held via live webcast that may be accessed by visiting www.proxydocs.com/VABK. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/VABK prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. If you are a beneficial owner, in addition to registering at www.proxydocs.com/VABK prior to the deadline, you must also obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting. To obtain a legal proxy, please follow the instructions listed on the voting instruction form provided to you.

Matters to be Considered

At the special meeting, Virginia National shareholders will be asked to:

 

  1.

Approve the Virginia National merger proposal (see “Virginia National Proposals – Proposal No. 1 – Virginia National Merger Proposal” beginning on page 53);

 

  2.

Approve the Virginia National compensation proposal (see “Virginia National Proposals – Proposal No. 2 – Virginia National Compensation Proposal” beginning on page 53); and

 

  3.

Approve any motion to adjourn the Virginia National special meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to achieve a quorum or to approve the Virginia National merger proposal (see “Virginia National Proposals – Proposal No. 3 – Virginia National Adjournment Proposal” beginning on page 53).

Recommendations of the Virginia National Board

The Virginia National Board unanimously (1) determined that the merger agreement is in the best interests of Virginia National and its shareholders, (2) approved and adopted the merger agreement and (3) recommends that Virginia National shareholders vote “FOR” the Virginia National merger proposal. The Virginia National Board also unanimously recommends that Virginia National shareholders vote “FOR” the Virginia National compensation proposal and “FOR” the Virginia National adjournment proposal.

Record Date and Voting Rights

The Virginia National Board has fixed the close of business on January 22, 2021 as the record date for determining the shareholders entitled to notice of and to vote at the Virginia National special meeting or any postponement or adjournment thereof. Accordingly, Virginia National shareholders are only entitled to notice of and to vote at the Virginia National special meeting if they were record holders of Virginia National common stock at the close of business on the record date. On the record date, there were 2,714,273 shares of Virginia National common stock outstanding, held by approximately 438 holders of record.

To have a quorum that permits Virginia National to conduct business at the Virginia National special meeting, it needs the presence, whether via the Internet or by proxy, of the holders of Virginia National common stock representing a majority of the shares outstanding on the record date and entitled to vote. Each Virginia National shareholder is entitled to one vote for each outstanding share of Virginia National common stock held by such shareholder as of the close of business on the record date.

Holders of shares of Virginia National common stock present via the Internet at the Virginia National special meeting but not voting, and shares of Virginia National common stock for which Virginia National has received proxies indicating that its holders have abstained, will be counted as present at the Virginia National special meeting for purposes of determining whether there is a quorum for transacting business. With respect to shares held in “street name,” the holders of record have the authority to vote shares for which the beneficial owners do not provide voting instructions only on certain “routine” items. In the case of “non-routine”

 

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items, the institution holding street name shares cannot vote the shares if it has not received voting instructions. These are considered to be “broker non-votes.” Since there are no “routine” items to be voted on at the Virginia National special meeting, custodian record holders of Virginia National common stock that do not receive voting instructions from the beneficial owners of such shares will not be able to submit a vote with respect to such shares; as a result, these shares will not be considered present at the Virginia National special meeting and will not count towards the satisfaction of a quorum.

Votes Required

Vote Required for the Virginia National Merger Proposal (Proposal No. 1)

Approval of the Virginia National merger proposal requires the affirmative vote of at least a majority of the shares of Virginia National common stock outstanding on the record date and entitled to vote. Accordingly, abstentions and broker non-votes will have the same effect as votes against the Virginia National merger proposal. In addition, a failure to vote Virginia National shares by proxy or during the Virginia National special meeting will have the same effect as a vote against the Virginia National merger proposal.

Vote Required for the Virginia National Compensation Proposal (Proposal No. 2)

The approval of the Virginia National compensation proposal requires that the votes cast for such proposal exceed the votes cast against such proposal.

Abstentions and broker non-votes will not count as votes cast for or against the Virginia National compensation proposal and will have no effect for purposes of determining whether the Virginia National compensation proposal has been approved.

Vote Required for the Virginia National Adjournment Proposal (Proposal No. 3)

The approval of the Virginia National adjournment proposal requires that the votes cast for the proposal exceed the votes cast against the proposal, whether or not a quorum is present.

Abstentions and broker non-votes will not count as votes cast and will have no effect for purposes of determining whether the Virginia National adjournment proposal has been approved.

Stock Ownership of Virginia National Directors and Executive Officers

As of the record date, directors and executive officers of Virginia National and their affiliates beneficially owned 563,518 shares of Virginia National common stock, representing approximately 20.76% of the aggregate voting power of Virginia National shares entitled to vote at the Virginia National special meeting. All of Virginia National’s directors have entered into affiliate agreements pursuant to which, subject to certain exceptions, they have agreed to vote their shares of Virginia National common stock over which they have the sole right and power to vote or direct disposition in favor of the Virginia National merger proposal. As of the close of business on January 22, 2021, the record date for the Virginia National special meeting, shares constituting 19.11% of Virginia National common stock were subject to the affiliate agreements.

Voting of Proxies

By Mail

A proxy card is enclosed for the use of Virginia National shareholders of record. To submit a proxy by mail, complete, sign, and date the enclosed proxy card and return it as soon as possible in the enclosed postage-paid envelope. Street name shareholders should refer to the voting instruction card provided by his or her broker, bank or other custodian. When the enclosed proxy card is returned properly executed, the shares of Virginia National common stock represented by it will be voted at the Virginia National special meeting in accordance with the instructions contained therein.

If the accompanying proxy card is returned properly executed without an indication as to how to vote, the Virginia National common stock represented by each such proxy will be voted at the Virginia National special meeting as follows: (1) “FOR” the Virginia National merger proposal (Proposal No. 1), (2) “FOR” the Virginia National compensation proposal (Proposal No. 2), and (3) “FOR” the Virginia National adjournment proposal (Proposal No. 3).

If the Virginia National special meeting is postponed or adjourned, all proxies will be voted at the postponed or adjourned Virginia National special meeting in the same manner as they would have been voted at the originally scheduled Virginia National special meeting except for any proxies that have been properly withdrawn or revoked.

 

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By Internet or Telephone

You may vote your shares via the Internet, by accessing the site listed on the enclosed proxy card and following the instructions, or by telephone, by calling the toll-free number listed on the enclosed proxy card on a touch-tone phone and following the recorded instructions.

Street name shareholders may also be eligible to vote their shares over the Internet or by telephone, by following the voting instruction card provided by the broker, bank or other custodian that holds the shares, using the Internet address or telephone number provided on the voting instruction card (if the broker, bank or other custodian provides this voting method).

Your vote is important! Please complete, sign, date, and return promptly the proxy card in the enclosed postage-paid envelope (or follow the instructions to vote your shares via the Internet or by telephone) whether or not you plan to attend the Virginia National special meeting.

Voting Online During the Special Meeting

If a Virginia National shareholder of record wishes to vote during the Virginia National special meeting, the shareholder may do so by registering to attend the special meeting as described in this joint proxy statement/prospectus, attending the special meeting and submitting a vote online. However, if you are a beneficial owner, you must obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting.

Revocation of Proxies

Any Virginia National shareholder giving a proxy may change or revoke it at any time before the polls are closed for voting at the Virginia National special meeting. If a Virginia National shareholder grants a proxy with respect to the shareholder’s Virginia National shares and then attends the Virginia National special meeting, such attendance at the Virginia National special meeting or at any adjournment or postponement of the Virginia National special meeting will not automatically revoke the proxy. A Virginia National shareholder of record may change or revoke a proxy by:

 

   

timely delivering a later-dated proxy or a written notice of revocation;

 

   

voting via the Internet or telephone as of a date subsequent to the initial Internet or telephone vote; or

 

   

attending the Virginia National special meeting and voting online during the special meeting (attendance at the Virginia National special meeting will not itself revoke a proxy).

If a Virginia National shareholder chooses the first method, he or she must submit the new proxy or notice of revocation to the corporate secretary of Virginia National, Donna G. Shewmake, at 404 People Place, Charlottesville, Virginia 22911, so that it is received by the corporate secretary no later than the beginning of the Virginia National special meeting or, if the Virginia National special meeting is adjourned or postponed, before the adjourned or postponed meeting is actually held.

If a Virginia National shareholder is a street name shareholder, he or she must follow the instructions found on the voting instruction card provided by his or her broker, bank or other custodian, or contact his or her broker, bank or other custodian, in order to change or revoke a previously given voting instruction.

If you are a registered shareholder and assistance is needed in changing or revoking a proxy prior to the meeting, please contact Virginia National’s agent, Mediant Communications, Inc. at (888) 503-0122. If you are a beneficial owner, please contact the broker, bank or other custodian that holds your shares. You may also contact Regan & Associates, Inc., Virginia National’s proxy solicitor, by calling (800) 737-3426 or by writing to Regan & Associates, Inc., 505 Eighth Avenue, Suite 800, New York, New York 10018, Attention: Artie Regan.

Solicitation of Proxies

This solicitation is made on behalf of the Virginia National Board, and Virginia National will pay the costs of soliciting and obtaining proxies, including the cost of reimbursing brokers and other custodians, nominees, and fiduciaries for their expenses incurred in forwarding these proxy materials to Virginia National shareholders. Proxies may be solicited, without extra compensation, by Virginia National’s directors, officers, and employees in person or by mail, telephone or other electronic means. In addition, Virginia National has engaged Regan & Associates, Inc. to assist it in the distribution and solicitation of proxies for a fee of approximately $10,000.

 

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VIRGINIA NATIONAL PROPOSALS

Proposal No. 1 – Virginia National Merger Proposal

At the Virginia National special meeting, Virginia National shareholders will be asked to approve the merger agreement providing for the merger of Fauquier with and into Virginia National. Virginia National shareholders should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

After careful consideration, the Virginia National Board, by a unanimous vote of all directors, approved the merger agreement and the merger, and determined that the merger is advisable and in the best interests of Virginia National and its shareholders. See “The Merger – Virginia National’s Reasons for the Merger; Recommendation of the Virginia National Board” for a more detailed discussion of the recommendation of the Virginia National Board.

THE VIRGINIA NATIONAL BOARD UNANIMOUSLY RECOMMENDS THAT VIRGINIA NATIONAL SHAREHOLDERS VOTE “FOR” THE VIRGINIA NATIONAL MERGER PROPOSAL.

Proposal No. 2 – Virginia National Compensation Proposal

In accordance with Section 14A of the Exchange Act, Virginia National is providing its shareholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be payable to its named executive officers in connection with the merger, the value of which is set forth in the table included in the section of this joint proxy statement/prospectus entitled “The Merger – Interests of Virginia National Directors and Executive Officers in the Merger – Potential Payments and Benefits to Virginia National Named Executive Officers in Connection with a Change in Control.” As required by Section 14A of the Exchange Act, Virginia National is asking its shareholders to vote on the adoption of the following resolution:

“RESOLVED, that the compensation that may be paid to the named executive officers of Virginia National in connection with the merger, as disclosed in the table in the section of the joint proxy statement/prospectus entitled “The Merger – Interests of Virginia National Directors and Executive Officers in the Merger – Potential Payments and Benefits to Virginia National Named Executive Officers in Connection with a Change in Control,” including the associated narrative discussion, is hereby APPROVED.”

Approval of this proposal is not a condition to completion of the merger. The vote on this proposal is a vote separate and apart from the vote on the Virginia National merger proposal. Because the Virginia National compensation proposal is advisory in nature only, a vote for or against approval will not be binding on either Virginia National or Fauquier.

The compensation that is subject to this proposal is a contractual obligation of Virginia National and/or Virginia National Bank. If the merger is approved and completed, such compensation may be paid, subject only to the conditions applicable thereto, even if shareholders fail to approve this proposal. The Virginia National Board will consider the results of the vote in making future executive compensation decisions.

THE VIRGINIA NATIONAL BOARD UNANIMOUSLY RECOMMENDS THAT VIRGINIA NATIONAL SHAREHOLDERS VOTE “FOR” THE VIRGINIA NATIONAL COMPENSATION PROPOSAL.

Proposal No. 3 – Virginia National Adjournment Proposal

If Virginia National does not receive a sufficient number of votes to constitute a quorum of the Virginia National common stock or approve the Virginia National merger proposal, it may propose to adjourn the special meeting for the purpose of soliciting additional proxies to establish such quorum or approve the merger agreement. Virginia National does not currently intend to propose adjournment of the special meeting if there are sufficient votes to approve such proposal. If approval of the proposal to adjourn the special meeting for the purpose of soliciting additional proxies is submitted to the Virginia National shareholders for approval, the approval requires that the votes cast for the proposal exceed the votes cast against the proposal, whether or not a quorum is present.

THE VIRGINIA NATIONAL BOARD UNANIMOUSLY RECOMMENDS THAT VIRGINIA NATIONAL SHAREHOLDERS VOTE “FOR” THE VIRGINIA NATIONAL ADJOURNMENT PROPOSAL.

 

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FAUQUIER SPECIAL MEETING OF SHAREHOLDERS

General

This section contains information about the Fauquier special meeting that has been called to vote upon the matters described below.

Fauquier is mailing this joint proxy statement/prospectus on or about February 9, 2021, to holders of shares of Fauquier common stock at the close of business on January 22, 2021, which is the record date for the Fauquier special meeting. Together with this joint proxy statement/prospectus, Fauquier is also sending a notice of the Fauquier special meeting and a form of proxy that is solicited by the Fauquier Board for use at the Fauquier special meeting to be held on March 25, 2021 at 10:00 a.m., Eastern Time, as a virtual meeting, and at any adjournment or postponement of that meeting. The special meeting will be held via live webcast that may be accessed by visiting www.proxydocs.com/FBSS. To attend and vote online during the special meeting, you will need to register in advance at www.proxydocs.com/FBSS prior to the deadline of March 23, 2021 at 5:00 p.m., Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. If you are a beneficial owner, in addition to registering at www.proxydocs.com/FBSS prior to the deadline, you must also obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting. To obtain a legal proxy, please follow the instructions listed on the voting instruction form provided to you.

Matters to be Considered

At the special meeting, Fauquier shareholders will be asked to:

 

  1.

Approve the Fauquier merger proposal (see “Fauquier Proposals – Proposal No. 1 – Fauquier Merger Proposal” beginning on page 57);

 

  2.

Approve the Fauquier compensation proposal (see “Fauquier Proposals – Proposal No. 2 – Fauquier Compensation Proposal” beginning on page 57); and

 

  3.

Approve any motion to adjourn the Fauquier special meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to achieve a quorum or to approve the Fauquier merger proposal (see “Fauquier Proposals – Proposal No. 3 – Fauquier Merger Proposal” beginning on page 57).

Recommendations of the Fauquier Board

The Fauquier Board unanimously (1) determined that the merger agreement is in the best interests of Fauquier and its shareholders, (2) approved and adopted the merger agreement and (3) recommends that Fauquier shareholders vote “FOR” the Fauquier merger proposal. The Fauquier Board also unanimously recommends that Fauquier shareholders vote “FOR” the Fauquier compensation proposal and “FOR” the Fauquier adjournment proposal.

Record Date and Voting Rights

The Fauquier Board has fixed the close of business on January 22, 2021 as the record date for determining the shareholders entitled to notice of and to vote at the Fauquier special meeting or any postponement or adjournment thereof. Accordingly, Fauquier shareholders are only entitled to notice of and to vote at the Fauquier special meeting if they were record holders of Fauquier common stock at the close of business on the record date. On the record date, there were 3,798,561 shares of Fauquier common stock outstanding, held by approximately 307 holders of record.

To have a quorum that permits Fauquier to conduct business at the Fauquier special meeting, it needs the presence, whether via the Internet or by proxy, of the holders of Fauquier common stock representing a majority of the shares outstanding on the record date and entitled to vote. A Fauquier shareholder is entitled to one vote for each outstanding share of Fauquier common stock held as of the close of business on the record date.

Holders of shares of Fauquier common stock present via the Internet at the Fauquier special meeting but not voting, and shares of Fauquier common stock for which Fauquier has received proxies indicating that its holders have abstained, will be counted as present at the Fauquier special meeting for purposes of determining whether there is a quorum for transacting business. With respect to shares held in “street name,” the holders of record have the authority to vote shares for which the beneficial owners do not provide voting instructions only on certain “routine” items. In the case of non-routine items, the institution holding street name shares cannot vote the shares if it has not received voting instructions. These are considered to be “broker non-votes.” Since there are no routine items to be voted on at the Fauquier special meeting, custodian record holders of Fauquier common stock that do not

 

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receive voting instructions from the beneficial owners of such shares will not be able to submit a vote with respect to such shares; as a result, these shares will not be considered present at the Fauquier special meeting and will not count towards the satisfaction of a quorum.

Votes Required

Vote Required for the Fauquier Merger Proposal (Proposal No. 1)

Approval of the Fauquier merger proposal requires the affirmative vote of more than two-thirds of the shares of Fauquier common stock outstanding on the record date and entitled to vote. Accordingly, abstentions and broker non-votes will have the same effect as votes against the Fauquier merger proposal. In addition, a failure to vote Fauquier shares by proxy or during the Fauquier special meeting will have the same effect as a vote against the Fauquier merger proposal.

Vote Required for the Fauquier Compensation Proposal (Proposal No. 2)

The approval of the Fauquier compensation proposal requires that the votes cast for such proposal exceed the votes cast against such proposal.

Abstentions and broker non-votes will not count as votes cast for or against the Fauquier compensation proposal and will have no effect for purposes of determining whether the Fauquier compensation proposal has been approved.

Vote Required for the Fauquier Adjournment Proposal (Proposal No. 3)

The approval of the Fauquier adjournment proposal requires that the votes cast for the proposal exceed the votes cast against the proposal.

Abstentions and broker non-votes will not count as votes cast for or against the Fauquier adjournment proposal and will have no effect for purposes of determining whether the Fauquier adjournment proposal has been approved.

Stock Ownership of Fauquier Directors and Executive Officers

As of the record date, directors and executive officers of Fauquier and their affiliates beneficially owned 192,294 shares of Fauquier common stock, representing approximately 5.06% of the aggregate voting power of Fauquier shares entitled to vote at the Fauquier special meeting. All of Fauquier’s directors have entered into affiliate agreements pursuant to which, subject to certain exceptions, they have agreed to vote their shares of Fauquier common stock over which they have the sole right and power to vote or to direct disposition in favor of the Fauquier merger proposal. As of the close of business on January 22, 2021, the record date for the Fauquier special meeting, shares constituting 3.95% of Fauquier common stock were subject to the affiliate agreements.

Voting of Proxies

By Mail

A proxy card is enclosed for the use of Fauquier shareholders of record. To submit a proxy by mail, complete, sign, and date the enclosed proxy card and return it as soon as possible in the enclosed postage-paid envelope. Street name shareholders should refer to the voting instruction card provided by his or her broker, bank or other custodian. When the enclosed proxy card is returned properly executed, the shares of Fauquier common stock represented by it will be voted at the Fauquier special meeting in accordance with the instructions contained therein.

If the accompanying proxy card is returned properly executed without an indication as to how to vote, the Fauquier common stock represented by each such proxy will be voted at the Fauquier special meeting as follows: (1) “FOR” the Fauquier merger proposal (Proposal No. 1), (2) “FOR” the Fauquier compensation proposal (Proposal No. 2), and (3) “FOR” the Fauquier adjournment proposal (Proposal No. 3).

If the Fauquier special meeting is postponed or adjourned, all proxies will be voted at the postponed or adjourned Fauquier special meeting in the same manner as they would have been voted at the originally scheduled Fauquier special meeting except for any proxies that have been properly withdrawn or revoked.

 

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By Internet or Telephone

You may vote your shares via the Internet, by accessing the site listed on the enclosed proxy card and following the instructions, or by telephone, by calling the toll-free number listed on the enclosed proxy card on a touch-tone phone and following the recorded instructions.

Street name shareholders may also be eligible to vote their shares over the Internet or by telephone, by following the voting instruction card provided by the broker, bank or other custodian that holds the shares, using the Internet address or telephone number provided on the voting instruction card (if the broker, bank or other custodian provides this voting method).

Your vote is important! Please complete, sign, date, and return promptly the proxy card in the enclosed postage-paid envelope (or follow the instructions to vote your shares via the Internet or by telephone) whether or not you plan to attend the Fauquier special meeting.

Voting Online During the Special Meeting

If a Fauquier shareholder of record wishes to vote during the Fauquier special meeting, the shareholder may do so by registering to attend the special meeting as described in this joint proxy statement/prospectus, attending the special meeting and submitting a vote online. However, if you are a beneficial owner, you must obtain a legal proxy, executed in your favor, from the broker, bank or other custodian that holds your shares, to be able to vote online during the special meeting.

Revocation of Proxies

Any Fauquier shareholder giving a proxy may change or revoke it at any time before the polls are closed for voting at the Fauquier special meeting. If a Fauquier shareholder grants a proxy with respect to the shareholder’s Fauquier shares and then attends the Fauquier special meeting, such attendance at the Fauquier special meeting or at any adjournment or postponement of the Fauquier special meeting will not automatically revoke the proxy. A Fauquier shareholder of record may change or revoke a proxy by:

 

   

timely delivering a later-dated proxy or a written notice of revocation;

 

   

voting via Internet or telephone as of a date subsequent to the initial Internet or telephone vote; or

 

   

attending the Fauquier special meeting and voting online during the special meeting (attendance at the Fauquier special meeting will not itself revoke a proxy).

If a Fauquier shareholder chooses the first method, he or she must submit the new proxy or notice of revocation to the secretary of Fauquier, Allison J. Dodson, at 10 Courthouse Square, Warrenton, Virginia 20186, so that it is received by the secretary no later than the beginning of the Fauquier special meeting or, if the Fauquier special meeting is adjourned or postponed, before the adjourned or postponed meeting is actually held.

If a Fauquier shareholder is a street name shareholder, he or she must follow the instructions found on the voting instruction card provided by his or her broker, bank or other custodian, or contact his or her broker, bank or other custodian, in order to change or revoke a previously given voting instruction.

If assistance is needed in changing or revoking a proxy prior to the meeting, please contact Fauquier’s secretary, Allison J. Dodson, at 10 Courthouse Square, Warrenton, Virginia 20186, or by telephone at (540) 347-2700. You may also contact Regan & Associates, Inc., Fauquier’s proxy solicitor, by calling (800) 737-3426 or by writing to Regan & Associates, Inc., 505 Eighth Avenue, Suite 800, New York, New York 10018, Attention: Artie Regan.

Solicitation of Proxies

This solicitation is made on behalf of the Fauquier Board, and Fauquier will pay the costs of soliciting and obtaining proxies, including the cost of reimbursing brokers and other custodians, nominees, and fiduciaries for their expenses incurred in forwarding these proxy materials to Fauquier shareholders. Proxies may be solicited, without extra compensation, by Fauquier’s directors, officers, and employees in person or by mail, telephone or other electronic means. In addition, Fauquier has engaged Regan & Associates, Inc. to assist it in the distribution and solicitation of proxies for a fee of approximately $15,000.

 

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FAUQUIER PROPOSALS

Proposal No. 1 – Fauquier Merger Proposal

At the Fauquier special meeting, Fauquier shareholders will be asked to approve the merger agreement providing for the merger of Fauquier with and into Virginia National. Fauquier shareholders should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

After careful consideration, the Fauquier Board, by a unanimous vote of all directors, approved the merger agreement and the merger, and determined that the merger is advisable and in the best interests of Fauquier and its shareholders. See “The Merger – Fauquier’s Reasons for the Merger; Recommendation of the Fauquier Board” for a more detailed discussion of the recommendation of the Fauquier Board.

THE FAUQUIER BOARD UNANIMOUSLY RECOMMENDS THAT FAUQUIER SHAREHOLDERS

VOTE “FOR” THE FAUQUIER MERGER PROPOSAL.

Proposal No. 2 – Fauquier Compensation Proposal

In accordance with Section 14A of the Exchange Act, Fauquier is providing its shareholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be payable to its named executive officers in connection with the merger, the value of which is set forth in the table included in the section of this joint proxy statement/prospectus entitled “The Merger – Interests of Fauquier Directors and Executive Officers in the Merger –?Potential Payments and Benefits to Fauquier Named Executive Officers in Connection with a Change in Control.” As required by Section 14A of the Exchange Act, Fauquier is asking its shareholders to vote on the adoption of the following resolution:

“RESOLVED, that the compensation that may be paid to the named executive officers of Fauquier in connection with the merger, as disclosed in the table in the section of the joint proxy statement/prospectus entitled “The Merger – Interests of Fauquier Directors and Executive Officers in the Merger?–?Potential Payments and Benefits to Fauquier Named Executive Officers in Connection with a Change in Control,” including the associated narrative discussion, is hereby APPROVED.”

Approval of this proposal is not a condition to completion of the merger. The vote on this proposal is a vote separate and apart from the vote on the Fauquier merger proposal. Because the Fauquier compensation proposal is advisory in nature only, a vote for or against approval will not be binding on either Fauquier or Virginia National.

The compensation that is subject to this proposal is a contractual obligation of Fauquier and/or The Fauquier Bank and of Virginia National and/or Virginia National Bank as the successors thereto. If the merger is approved and completed, such compensation may be paid, subject only to the conditions applicable thereto, even if shareholders fail to approve this proposal. If the merger is not completed, the Fauquier Board will consider the results of the vote in making future executive compensation decisions.

THE FAUQUIER BOARD UNANIMOUSLY RECOMMENDS THAT FAUQUIER SHAREHOLDERS

VOTE “FOR” THE FAUQUIER COMPENSATION PROPOSAL.

Proposal No. 3 – Fauquier Adjournment Proposal

If Fauquier does not receive a sufficient number of votes to constitute a quorum of the Fauquier common stock or approve the merger agreement, it may propose to adjourn the special meeting for the purpose of soliciting additional proxies to establish such quorum or approve the merger agreement. Fauquier does not currently intend to propose adjournment of the special meeting if there are sufficient votes to approve the merger agreement. If approval of the proposal to adjourn the special meeting for the purpose of soliciting additional proxies is submitted to the Fauquier shareholders for approval, the approval requires that the votes cast for such proposal exceed the votes cast against such proposal.

THE FAUQUIER BOARD UNANIMOUSLY RECOMMENDS THAT FAUQUIER SHAREHOLDERS

VOTE “FOR” THE FAUQUIER ADJOURNMENT PROPOSAL.

 

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THE MERGER

The following is a discussion of the merger. This summary may not contain all of the information about the merger that is important to you. Holders of Virginia National common stock and Fauquier common stock should read carefully this joint proxy statement/prospectus in its entirety, including the appendices, for more detailed information concerning the merger and the merger agreement. In particular, you are directed to the merger agreement, including the exhibits thereto, copies of which are attached as Appendix A and are incorporated in this joint proxy statement/prospectus by reference.

Background of the Merger

The merger agreement is the result of arms-length negotiations between representatives of Virginia National and representatives of Fauquier, during which the parties consulted their respective legal and financial advisors. The following is a brief discussion of the background of these negotiations.

As part of the ongoing oversight and management of their respective companies, each of the Virginia National Board and the Fauquier Board, and the executive management team of each of Virginia National and Fauquier, regularly review and assess their respective companies’ long-term strategic goals and opportunities and their respective companies’ performance and prospects in light of competitive and other relevant developments, all with the goal of enhancing shareholder value. For each of Virginia National and Fauquier, these reviews have included periodic discussions regarding potential transactions that could further its strategic objectives and the potential benefits and risks of any such transactions.

As part of its ongoing consideration and evaluation of its business and plans and review of its strategic opportunities, the Fauquier Board periodically has reviewed and discussed various strategic alternatives, including whether it should continue as an independent entity, grow organically, or affiliate with another financial institution. Certain of these reviews and discussions have included analyses of the mergers and acquisitions environment and an assessment of potential partners of Fauquier. From time to time, Fauquier has held discussions with other financial institutions, including Virginia National, regarding a potential strategic combination, particularly financial institutions looking to enter or expand in Fauquier County, Virginia or other markets in Northern Virginia.

The Virginia National Board and its strategic planning committee have regularly reviewed and discussed Virginia National’s business strategy, performance and prospects in the context of the national and local economic environment and developments in the competitive landscape for community banks. The members of the strategic planning committee of the Virginia National Board are Hunter E. Craig, William D. Dittmar, Jr., James T. Holland, Linda M. Houston and Glenn W. Rust. Among other things, Virginia National has analyzed the mergers and acquisitions environment, including multiples and premiums being paid, and an assessment of potential partners for Virginia National. In connection with the evaluation of these strategic alternatives, Mr. Rust has had, from time to time, informal discussions with representatives of other financial institutions, including Fauquier, and has regularly updated the Virginia National Board regarding such discussions.

On March 6, 2019, the Virginia National Board engaged Banks Street Partners, LLC, which later merged with Performance Trust, to serve as financial advisor to Virginia National in connection with its strategic planning and evaluation of potential business combination transactions.

In June 2019, Mr. Rust and Marc J. Bogan, president and chief executive officer of Fauquier, met in Charlottesville, Virginia and discussed, among other topics, the community banking industry and current market conditions generally, and the potential for a strategic combination of Virginia National and Fauquier in a merger of equals transaction. No specific terms of a potential merger were discussed during this meeting, although Mr. Rust and Mr. Bogan discussed the potential structure and benefits of such a transaction, and potential challenges and market reaction to such a transaction. Among the strategic benefits of a merger of equals transaction, Mr. Rust and Mr. Bogan discussed that such a merger would create a combined community bank with assets exceeding $1 billion, deliver meaningful economies of scale, combine two successful executive management teams and improve executive succession, diversify the loan portfolio of each bank while capitalizing on core funding strengths, and expand the combined bank’s footprint to focus on several of Virginia’s highest income markets. During July and August 2019, Mr. Rust and Mr. Bogan continued to have periodic and general discussions regarding a potential strategic combination of Virginia National and Fauquier, including possible composition of the combined company’s board of directors, branding for and headquarters location of the combined bank, and post-merger executive leadership.

At the regularly scheduled meetings of the Fauquier Board held during June and July, 2019, Mr. Bogan provided a summary of conversations with Mr. Rust regarding the potential transaction. In each instance, following discussion, the Fauquier Board authorized Mr. Bogan to continue conversations with Virginia National regarding a potential strategic transaction. On August 15, 2019, at a regularly scheduled meeting of the Fauquier Board, Mr. Bogan led the Fauquier Board in a general discussion about Virginia National and the potential advantages of a strategic combination of Virginia National and Fauquier including the strategic

 

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benefits discussed by Mr. Rust and Mr. Bogan at their June 2019 meeting. After that discussion, the Fauquier Board authorized Mr. Bogan to engage in further exploratory discussions with Virginia National.

At the regularly scheduled meetings of the Virginia National Board held during the summer and early fall of 2019, Mr. Rust led discussions regarding a potential merger transaction with Fauquier and kept the board and strategic planning committee informed regarding his conversations with Mr. Bogan. Performance Trust conducted preliminary financial analyses of the merger, which were shared with the Virginia National Board and its strategic planning committee. At these meetings, the Virginia National Board discussed the structure of a transaction with Fauquier, the desired composition of the board and executive management team of the combined company, the strategic benefits and risks of the transaction to Virginia National and its shareholders, and certain financial aspects of the merger. Based on these discussions, the Virginia National Board was supportive of Mr. Rust and the strategic planning committee continuing to explore a partnership with Fauquier.

On September 6, 2019, Mr. Rust and Mr. Bogan met in Charlottesville, Virginia to further discuss a potential strategic combination of Virginia National and Fauquier, with a representative of Performance Trust attending by phone. The parties discussed each institution’s financial performance for the second quarter of 2019, the potential benefits of a strategic combination including future merger or acquisition transactions once combined, executive leadership following a transaction, and the executive talent at both institutions. The parties engaged in a general discussion of the business, philosophy and culture of Virginia National and Fauquier. At the conclusion of the meeting, both parties expressed interest in continuing conversations regarding a potential strategic combination. On September 23, 2019, Virginia National and Fauquier executed a mutual nondisclosure agreement to facilitate further discussions, preliminary due diligence reviews and further analysis of a potential strategic combination of Virginia National and Fauquier.

On September 23, 2019, on behalf of Fauquier, Mr. Bogan contacted a representative of Piper Sandler regarding a potential strategic transaction between Fauquier and Virginia National and Piper Sandler serving as financial advisor to Fauquier with respect to such a transaction.

On October 17, 2019, at a regularly scheduled meeting of the Fauquier Board, the Fauquier Board again discussed a potential strategic combination with Virginia National. Mr. Bogan updated the Fauquier Board on discussions with Mr. Rust and Piper Sandler regarding the proposed transaction.

Beginning in October 2019, Mr. Rust, Mr. Bogan, and representatives of Performance Trust and Piper Sandler worked on select materials and analyses related to a potential merger of Virginia National and Fauquier. On November 14, 2019, the parties exchanged preliminary due diligence request lists and began exchanging preliminary due diligence information to determine whether there was continued interest in pursuing a strategic transaction.

From November 14 through November 21, 2019, members of Virginia National’s executive management team and representatives of Performance Trust held several discussions regarding the potential transaction, including reviewing certain financial models of the proposed merger and discussing potential terms of the transaction, and Virginia National began its formal due diligence review of Fauquier and related tasks. In an effort to facilitate more detailed discussions between the parties and build consensus regarding the structure and major terms of the transaction, Performance Trust, with input from Virginia National’s strategic planning committee, prepared a preliminary written overview of a strategic merger of equals transaction between Virginia National and Fauquier. The transaction overview document assumed the parties would combine in an all-stock transaction with Virginia National and Virginia National Bank being the surviving entities. The document also included illustrative transaction terms based on precedent merger of equals transactions and the prior conversations between Messrs. Rust and Bogan. These illustrative transaction terms were intended to serve as an outline for negotiating a non-binding letter of intent. On November 21, 2019, Virginia National delivered to Fauquier a copy of the transaction overview document. During late November and early December 2019, Mr. Bogan reviewed the transaction overview document and considered the illustrative transaction terms contained in the transaction overview document.

On December 11, 2019, Mr. Dittmar, chairman of the Virginia National Board, Mr. Rust, John B. Adams, Jr., chairman of the Fauquier Board, and Mr. Bogan met to discuss each party’s interest in a potential merger of equals transaction. The parties discussed the transaction overview document previously delivered by Virginia National and engaged in a focused discussion with the goal of developing a non-binding letter of intent between the parties. During this meeting, Mr. Dittmar and Mr. Adams met separately to discuss their perspectives on the combined institution’s franchise and pro forma corporate governance, including representation of each company on the combined institution’s board of directors. Also during this meeting, Mr. Rust and Mr. Bogan met separately to discuss financial projections, potential cost savings, strategic fit and synergies, and the combined institution’s management team.

On December 19, 2019, at a regularly scheduled meeting of the Fauquier Board, Mr. Adams and Mr. Bogan led a discussion regarding Fauquier’s interest in a potential merger of Virginia National and Fauquier. The Fauquier Board considered potential transaction terms of such a merger, including a preference for stock consideration, potential exchange ratios, and post-merger

 

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corporate governance and executive succession issues, including the proposed terms contained in the transaction overview document that Mr. Rust shared with Mr. Bogan in November 2019. At this meeting, the Fauquier Board indicated its support for continuing discussions regarding a strategic combination with Virginia National, subject to further negotiation of the transaction terms that were included in Virginia National’s overview.

On January 15, 2020, at a regularly scheduled meeting of the Virginia National Board, the Virginia National Board discussed, amongst itself and with representatives of Performance Trust and Virginia National’s executive management team, strategic considerations relating to a possible merger of equals transaction with Fauquier, the results of due diligence conducted to date, a review of the potential financial impact of the transaction, and the potential terms of the transaction. At the conclusion of the meeting, the Virginia National Board authorized delivery to Fauquier of a non-binding letter of intent reflecting the proposed terms discussed at the meeting.

On January 15, 2020, Virginia National submitted to Fauquier a proposed non-binding letter of intent providing for a preliminary offer for Fauquier to merge into Virginia National and converting each share of Fauquier common stock into 0.6530 newly issued shares of Virginia National common stock, representing approximately 48% ownership of the combined company by current shareholders of Fauquier. In addition, the proposed letter of intent provided that the board of directors of the combined company would be composed of six members of the Fauquier Board and eight members of the Virginia National Board, and that Mr. Bogan would serve as president of Virginia National Bank after the merger and would be considered for the role of chief executive officer of Virginia National beginning 18 months following the merger.

On January 24, 2020, at a special meeting of the Fauquier Board, representatives of Piper Sandler presented select analyses related to the market for financial institution merger and acquisition transactions, including comparable mergers of equals that were completed in 2019 and their financial characteristics, key transaction metrics, and potential market share price reactions. Piper Sandler also presented information related to branding and corporate governance in merger of equals transactions. Following this meeting, on February 3, 2020, Fauquier formally engaged Piper Sandler to serve as financial advisor to Fauquier with respect to a proposed merger of Virginia National and Fauquier. During January and February 2020, Mr. Bogan met with each director of Fauquier to discuss a potential merger with Virginia National, and the Fauquier Board further discussed the proposed transaction and the terms of a merger proposed by Virginia National in the overview document and non-binding letter of intent.

On January 29, 2020, Fauquier delivered a revised non-binding letter of intent to Virginia National that proposed to increase the exchange ratio in the proposed merger from 0.6530 to 0.7112 and proposed that the Virginia National Board following closing would be comprised of seven directors from each of Virginia National and Fauquier, and that Mr. Bogan would be considered for the position of chief executive officer of Virginia National beginning 12 months following the merger.

From January 29 to February 5, 2020, members of Virginia National’s strategic planning committee, members of Virginia National’s executive management team and representatives of Performance Trust had multiple discussions regarding Fauquier’s revised non-binding letter of intent. These discussions involved the increased exchange ratio of 0.7112 requested by Fauquier in the context of the other transaction terms, Fauquier’s request to increase in the number of Fauquier directors to serve on the combined company’s board of directors, the results of Virginia National’s due diligence investigation of Fauquier to date, and a review of the potential financial impact to Virginia National of a transaction with Fauquier. Following this discussion, Virginia National determined to submit a revised non-binding letter of intent. Virginia National also contacted Williams Mullen, Virginia National’s outside counsel, to inform them of the proposed transaction and formally engage Williams Mullen to act as legal counsel to Virginia National in connection with the proposed merger.

On February 5, 2020, Virginia National submitted a revised non-binding letter of intent to Fauquier with an exchange ratio of 0.675 shares of Virginia National common stock for each share of Fauquier common stock and indicating that the board of directors of the combined company would be composed of six members of the Fauquier Board and seven members of the Virginia National Board. Other than with respect to the exchange ratio and the composition of the combined company’s board of directors, the material transaction terms set forth in the revised non-binding letter of intent remained unchanged from the initial non-binding letter of intent submitted by Virginia National on January 15, 2020.

During February and early March 2020, Mr. Rust and Mr. Bogan continued to discuss the corporate governance and executive management considerations related to the proposed merger, including the size and composition of the board of directors of the combined company following the merger and possible executive succession timelines.

On February 20, 2020, at a regularly scheduled meeting of the Fauquier Board, the Fauquier Board in executive session discussed the updated non-binding letter of intent received from Virginia National and the proposed merger. The Fauquier Board specifically evaluated the proposed exchange ratio, the composition of the Virginia National Board after the merger, and how Virginia National would consider Mr. Bogan to serve as chief executive officer of Virginia National following the merger. Following this meeting, Mr. Bogan communicated the Fauquier Board’s views on these transaction terms to Mr. Rust.

 

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Between February 20, 2020 and March 6, 2020, Fauquier and Virginia National continued to negotiate the composition of the Virginia National Board after the merger and the anticipated executive succession timeline and exchanged multiple updated drafts of the non-binding letter of intent addressing those issues. On March 6, 2020, Virginia National and Fauquier executed a non-binding letter of intent with respect to a merger of Virginia National and Fauquier. The executed non-binding letter of intent included an exchange ratio of 0.675 shares of Virginia National common stock for each share of Fauquier common stock and provided that the board of directors of the combined company would be composed of six members of the Fauquier Board and seven members of the Virginia National Board.

On March 19, 2020, at a regularly scheduled meeting of the Fauquier Board, representatives of Piper Sandler presented a summary of negotiations regarding the non-binding letter of intent and improvements from Virginia National’s initial offer to the terms of the executed letter of intent. Representatives of Piper Sandler also presented updated information regarding merger-of-equals transactions and analysis of financial metrics for the proposed merger. In the week following this meeting, Fauquier formally engaged Troutman Pepper to act as legal counsel to Fauquier in connection with the proposed merger of Virginia National and Fauquier. On March 26, 2020, Virginia National and Fauquier executed an updated mutual confidentiality agreement to permit each party to conduct an expanded due diligence review of the other.

Beginning in March 2020 and continuing into June 2020, Virginia National and Fauquier conducted further due diligence reviews of the other party. These due diligence reviews included evaluations of business operations, financial performance, loan and securities portfolios, employee benefits, and other matters, with focused review beginning in April 2020 of the impact of the COVID-19 pandemic on each institution’s operations, financial condition and asset quality. In addition, Virginia National engaged third party experts to assist with the due diligence on Fauquier, including a loan portfolio review, stress tests on Fauquier and on Virginia National (standalone and pro forma with Fauquier), employee benefit plans, trust, and limited due diligence on other financial and taxation matters. Fauquier and Virginia National each periodically discussed diligence updates within the executive management team and presented periodic due diligence summaries to their respective boards of directors.

On June 23, 2020, Messrs. Dittmar and Rust on behalf of Virginia National, and Messrs. Adams and Bogan on behalf of Fauquier, met by video conference to discuss the progress of each party’s due diligence review and negotiations of terms for a proposed merger of Virginia National and Fauquier. Following this meeting, the Fauquier Board formed a strategic committee to work with the strategic planning committee of the Virginia National Board to discuss the proposed merger and to negotiate certain terms, including in light of challenges posed by the COVID-19 pandemic to the parties’ negotiations and due diligence reviews. Fauquier directors, Mr. Adams, Mr. Bogan, Jay B. Keyser, Randolph D. Frostick and P. Kurtis Rodgers, served on the strategic committee of the Fauquier Board.

On July 10, 2020, Virginia National’s strategic planning committee held a telephonic meeting with members of Virginia National’s executive management team and representatives of Performance Trust to discuss third party due diligence reviews and the potential transaction with Fauquier. Representatives of Performance Trust provided an update with respect to its financial analysis of the transaction in light of the due diligence findings and the impact of the COVID-19 pandemic on Virginia National and Fauquier. The strategic planning committee separately discussed many aspects of the transaction, focusing on the potential challenges of evaluating Fauquier and executing the transaction during the ongoing pandemic.

On July 22, 2020, the strategic committee of the Fauquier Board met with the strategic planning committee of the Virginia National Board to discuss the merits of the merger transaction, key points for consideration and further negotiation with a particular focus on post-merger corporate governance and executive management succession, and significant due diligence findings to date. On July 24, 2020, Mr. Rust and Mr. Bogan met to discuss due diligence findings to date, including select findings in third-party diligence reviews, as well as issues related to composition of the combined company’s board of directors, executive succession, and a targeted schedule for negotiating a definitive merger agreement.

On August 3, 2020, the strategic planning committee of the Virginia National Board held a telephonic meeting to discuss the proposed merger with Fauquier. During this meeting, the committee engaged in extensive discussions regarding, among other things, corporate governance matters and the composition of the combined company’s board of directors, executive management succession, due diligence findings, impacts of the COVID-19 pandemic, and the timing and execution of the transaction. Following these discussions, the committee affirmed its commitment to move forward with the transaction pursuant to the terms proposed in the March 6, 2020 non-binding letter of intent, and communicated the same to Mr. Bogan.

On August 11, 2020, the Fauquier Board convened a special meeting to discuss the proposed merger between Virginia National and Fauquier and the meeting between the strategic committee of the Fauquier Board and the strategic planning committee of the Virginia National Board. Messrs. Adams, Keyser, Frostick and Rodgers, the outside directors serving on the strategic committee, led a discussion with the full Fauquier Board regarding the financial and strategic benefits of the merger, including increased efficiencies of scale and increased strategic flexibility when responding to challenges, including the COVID-19 pandemic and the low interest rate environment.

 

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On August 20, 2020, at a regularly scheduled meeting of the Fauquier Board, Mr. Bogan led a discussion of the proposed merger of Virginia National and Fauquier. Representatives of Troutman Pepper presented regarding fiduciary duties of directors and standards of director conduct that will apply in connection with the proposed merger. Following that presentation, representatives of Piper Sandler presented a financial update to the Fauquier Board. The Fauquier Board discussed these presentations and significant findings from Fauquier’s due diligence review of Virginia National to date. At the conclusion of this meeting, the Fauquier Board affirmed its commitment to the letter of intent dated March 6, 2020 and authorized Fauquier’s executive management team and Troutman Pepper to begin negotiating final terms for the proposed merger and prepare the necessary legal documentation.

On August 21, 2020, Virginia National authorized Williams Mullen to begin preparing a draft of the definitive merger agreement. An initial draft of the agreement was delivered to Virginia National’s executive management team on August 27, 2020. Virginia National’s executive management team had several telephonic meetings with representatives of Williams Mullen over the next several days to finalize the initial draft agreement to be delivered to Fauquier and its representatives.

During the week of August 24, 2020, the executive management teams of Virginia National and Fauquier met with representatives of Williams Mullen and Performance Trust, and Troutman Pepper and Piper Sandler, respectively, regarding the proposed merger transaction and a proposed timeline for completing their respective due diligence reviews. The parties began refreshing prior due diligence reviews in light of the continuing effects of the COVID-19 pandemic, and further updated Virginia National’s and Fauquier’s internal financial forecasts to reflect the lower interest rate environment and potential credit losses anticipated due to the COVID-19 pandemic.

On August 31, 2020, Mr. Rust and Mr. Bogan met in Charlottesville, Virginia to discuss the proposed merger and focused on the combined company’s pro forma management structure, employee compensation issues, operating budgets for the 2021 fiscal year, and communication strategies if the merger moves forward. On September 2, 2020, Mr. Rust, Mr. Bogan and other representatives of management of Virginia National and Fauquier met to discuss employee benefits plans, equity and cash incentive plans, and other human resources issues.

On September 1, 2020, representatives of Williams Mullen delivered an initial draft of the definitive merger agreement to representatives of Troutman Pepper containing the proposed complete terms of the transaction, and Fauquier’s executive management team and its advisors began their review and negotiation of the provisions of the merger agreement. In addition, the parties continued their respective business, legal and financial investigations and due diligence reviews during the week of August 31, 2020, and conducted supplemental diligence related to the COVID-19 pandemic. On September 9, 2020, Troutman Pepper delivered a revised draft of the proposed merger agreement to Williams Mullen and, between September 9, 2020 and September 28, 2020, Virginia National, Fauquier and their respective financial advisors and legal counsel continued to negotiate the terms of the merger agreement and related documents and various matters related to the proposed combination of Virginia National and Fauquier and exchanged multiple drafts of the transaction documents. During this time, the parties also provided drafts of, reviewed, and asked questions regarding their respective disclosure schedules to the merger agreement and negotiated other aspects of the proposed transaction and related documents.

On September 14, 2020, the strategic planning committee of the Virginia National Board and members of Virginia National’s executive management team held a telephonic meeting with representatives of Williams Mullen to discuss the most recent draft of the definitive merger agreement and ongoing negotiation with Fauquier and its representatives.

On September 17, 2020, the Fauquier Board held its regularly scheduled meeting with members of Fauquier’s executive management team, as well as representatives of Piper Sandler and Troutman Pepper, in attendance. Representatives of Troutman Pepper reviewed with the Fauquier Board the terms of the merger agreement and the terms of the proposed transaction. The Fauquier Board had been provided with a set of meeting materials in advance of the meeting including a draft of the merger agreement, a summary of merger agreement prepared by representatives of Troutman Pepper, and a summary of the fiduciary duties of Fauquier directors under Virginia law. Representatives of Piper Sandler presented information regarding its financial analysis of the proposed transaction. The Fauquier Board asked questions of Fauquier’s management and representatives of Troutman Pepper and Piper Sandler, and engaged in detailed discussion and deliberation regarding the terms of the proposed transaction, with particular focus on corporate governance and employee benefits matters. During this meeting the Fauquier Board considered the strategic and financial benefits of the proposed transaction, including that the forecast earnings per share accretion for Fauquier shareholders exceeded 25% and the forecast dividend per share accretion exceeded 60%, the complementary market footprints with limited overlap and presence in growth markets, the larger legal lending limit of the combined company, the strong pro forma combined management team, that the merger would combine Virginia National’s successful commercial bank franchise with Fauquier’s successful community bank franchise, resulting in diversified loan and deposit portfolios, positive financial performance and strong capital position of each of Fauquier and Virginia National, and increased ability to navigate uncertain market conditions as a larger financial institution.

 

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During the week of September 14, 2020, the executive management teams of Virginia National and Fauquier held several meetings to continue focused due diligence efforts related to the proposed transaction.

From September 17, 2020 to September 28, 2020, the executive management teams of Virginia National and Fauquier, and their respective legal counsel, held several telephonic meetings regarding corporate governance, employee benefits, and executive leadership issues related to the proposed transaction. At these meetings the Virginia National and Fauquier representatives shares multiple proposals to address Fauquier’s employee benefits, supplemental executive retirement plans, outstanding equity awards and employment agreements in the proposed merger.

During the week of September 21, 2020, members of the Virginia National and Fauquier executive management teams continued their respective due diligence investigations and continued to review documents made available in electronic data rooms. Virginia National’s and Fauquier’s due diligence investigations were substantially completed by September 25, 2020. Also during this week, members of management of Virginia National and Fauquier conducted multiple meetings regarding internal and external communications plans for announcing the merger, as well as to discuss select due diligence issues (including with respect to employee benefits) outstanding with respect to the merger.

On September 23, 2020, the Virginia National Board held its regularly scheduled meeting with members of Virginia National’s executive management team, as well as representatives of Performance Trust and Williams Mullen, in attendance. Representatives of Williams Mullen reviewed with the Virginia National Board the terms of the merger agreement, the terms of the proposed transaction, and the directors’ fiduciary duties under applicable law. The Virginia National Board had been provided with a set of meeting materials in advance of the meeting including a draft of the merger agreement, a summary of merger agreement prepared by representatives of Williams Mullen, drafts of the amendments to the Virginia National and Virginia National Bank bylaws to implement the changes in size and composition of their boards of directors, the bank merger agreement, the affiliate agreements, draft resolutions, and a financial presentation prepared by Performance Trust. Representatives of Performance Trust presented a preliminary analysis of the fairness, from a financial point of view, of the per share merger consideration to holders of Virginia National’s common stock. The Virginia National Board asked questions of Virginia National’s management and representatives of Williams Mullen and Performance Trust, and engaged in detailed discussion and deliberation regarding the terms of the proposed transaction, with particular focus on the outstanding corporate governance and employee benefits matters. During this meeting the Virginia National Board considered the strategic and financial benefits of the proposed transaction, including the expectation that the combined company will be better positioned to compete and grow its business and will have superior future earnings and prospects compared to Virginia National on an independent basis. The Virginia National Board also considered the potential risks and uncertainties associated with the merger, including the effects of the COVID-19 pandemic on Virginia National and Fauquier and how those effects could impact the success of the merger and the combined company.

On September 25, 2020, Mr. Rust and Mr. Bogan met telephonically to review the updated terms of the proposed transaction with respect to corporate governance, employee benefits and executive compensation issues. Following the meeting and through September 28, 2020, Virginia National and Fauquier, along with representatives of Williams Mullen and Troutman Pepper, continued to negotiate revisions to the draft merger agreement. During this period, Virginia National, Fauquier, and representatives of Williams Mullen and Troutman Pepper exchanged multiple proposals to resolve open issues with respect to the merger and multiple proposed updates to the merger agreement and other transaction documents.

On September 28, 2020, the Virginia National Board and Virginia National Bank board of directors convened a telephonic joint special meeting to discuss the proposed transaction. Members of Virginia National’s executive management team, representatives of Williams Mullen, and representatives of Performance Trust also participated in the meeting. In advance of the meeting, directors were provided with an updated draft of the merger agreement, a summary of the material changes to the merger agreement since the September 23, 2020 meeting prepared by representatives of Williams Mullen, draft resolutions, and a financial presentation prepared by Performance Trust.

At this meeting, Performance Trust provided an update to its September 23, 2020 presentation and rendered an opinion (which was initially rendered verbally on September 28, 2020 and then confirmed in a written opinion, dated September 30, 2020) to the effect that, as of the date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Performance Trust as set forth in such opinion, the per share merger consideration was fair, from a financial point of view, to holders of Virginia National’s common stock. Representatives of Williams Mullen discussed with the Virginia National Board the changes to terms of the merger agreement since the meeting on September 23, 2020, restrictions on trading in securities issued by Virginia National before the merger closes, and the timeline and process for announcing and closing the merger.

After considering the proposed terms of the merger agreement, the affiliate agreements and the various presentations of Virginia National’s financial advisors and legal counsel, and the matters discussed during the September 23, 2020 meeting and other prior meetings of the Virginia National Board, including the factors described under the section of this joint proxy statement/prospectus entitled “– Virginia National’s Reasons for the Merger; Recommendation of the Virginia National Board,” the

 

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Virginia National Board determined that the merger agreement, including the merger and the bank merger, were in the best interests of Virginia National and its shareholders, and the Virginia National Board unanimously approved and adopted the merger agreement and the transactions contemplated thereby and determined to recommend that Virginia National’s shareholders approve the merger agreement and the merger. Mr. Rust was authorized to approve and execute the final forms of the merger agreement and related transaction documents consistent with the terms approved by the Virginia National Board.

On September 28, 2020, the Fauquier Board convened a special meeting, held jointly with a special meeting of The Fauquier Bank board of directors, to discuss the proposed transaction. Members of Fauquier’s executive management team, as well as representatives of Piper Sandler and Troutman Pepper, were also in attendance as the Fauquier Board considered approval of the merger agreement and the transactions contemplated by the merger agreement. The Fauquier Board had been provided with a set of meeting materials in advance of the meeting including the merger agreement, a summary of the material changes to the merger agreement prepared by representatives of Troutman Pepper, the bank merger agreement, the affiliate agreements, and a financial presentation prepared by Piper Sandler.

At this meeting, Piper Sandler reviewed with the Fauquier Board the financial aspects of the proposed merger and rendered an opinion (which was initially rendered verbally and then confirmed in a written opinion, dated September 28, 2020) to the effect that, as of the date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler as set forth in such opinion, the exchange ratio was fair, from a financial point of view, to Fauquier’s shareholders. Representatives of Troutman Pepper discussed with the Fauquier Board the terms of the merger agreement and the affiliate agreements, directors’ fiduciary duties under applicable law, and restrictions on trading in securities issued by Fauquier before the merger closes, in each case referencing and updating advice rendered to the Fauquier Board at prior meetings.

After considering the proposed terms of the merger agreement, the affiliate agreements and the various presentations of Fauquier’s financial advisors and legal counsel, and the matters discussed during the September 17, 2020 meeting and other prior meetings of the Fauquier Board, including the factors described under the section of this joint proxy statement/prospectus entitled “– Fauquier’s Reasons for the Merger; Recommendation of the Fauquier Board,” the Fauquier Board determined that the merger agreement, including the merger and the bank merger, were in the best interests of Fauquier and its shareholders, and the Fauquier Board unanimously approved and adopted the merger agreement and the transactions contemplated thereby and determined to recommend that Fauquier’s shareholders approve the merger agreement and the merger. Mr. Bogan was authorized to approve and execute the final forms of the merger agreement and related transaction documents consistent with the terms approved by the Fauquier Board.

Following the meetings of the Virginia National Board and the Fauquier Board on September 28, 2020 and through the evening of September 30, 2020, the executive management teams of Virginia National and Fauquier and their respective legal counsel and financial advisors worked to finalize the merger agreement and other transaction documents.

On the evening of September 30, 2020, Virginia National and Fauquier executed the merger agreement. On the morning of October 1, 2020, Virginia National and Fauquier issued a joint press release publicly announcing the execution of the merger agreement and the terms of the merger.

Virginia National’s Reasons for the Merger; Recommendation of the Virginia National Board

In reaching its determination to approve and adopt the merger agreement, and to recommend the merger agreement to Virginia National shareholders, the Virginia National Board consulted with Virginia National’s management and its financial and legal advisors, and considered a number of factors, including the following:

 

   

its knowledge of Fauquier’s financial condition, earnings, business operations and prospects, taking into account the results of Virginia National’s extensive due diligence investigation of Fauquier and its loan portfolio;

 

   

the strategic opportunities associated with expansion into complementary geographic markets in Virginia in which Fauquier operates, and the ability to leverage the combined company’s larger size and increased visibility to continue Virginia National’s expansion into attractive, high growth markets;

 

   

the advantages of being part of a larger institution that is expected to have over $1.7 billion in assets and $1.1 billion in assets under management, including a better ability to leverage overhead costs and the potential for operating efficiencies and increased profitability, particularly in light of the regulatory and competitive environments and the effects of continued rapid consolidation in the financial services industry generally;

 

   

the compatibility of Virginia National’s business, operations and culture with those of Fauquier;

 

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the attractiveness of Fauquier’s low cost funding base to support future growth;

 

   

the expectation that the combined company will be better positioned to compete and grow its business and will have superior future earnings and prospects compared to Virginia National on an independent basis;

 

   

the greater potential for increased liquidity in the market for common stock and higher trading multiples of tangible book value and earnings per share of the combined company compared to an institution of Virginia National’s current size;

 

   

Virginia National’s expectations and analyses of the financial metrics of the merger, including potential cost saving opportunities, expected earnings per share accretion and manageable dilution to tangible book value of approximately 3.9 years;

 

   

the financial analysis prepared by Performance Trust and the opinion delivered to the Virginia National Board (in its capacity as such) by Performance Trust on September 30, 2020, and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Performance Trust in preparing the opinion, as to the fairness, from a financial point of view, of the per share merger consideration to holders of Virginia National’s common stock, as more fully described below in the section titled “– Opinion of Virginia National’s Financial Advisor”;

 

   

the corporate governance and social aspect of the merger, including relative representation on the board of directors of the combined company;

 

   

the added strength and depth of experience of the members of Fauquier’s management team who will join Virginia National’s management team following the merger, including Marc J. Bogan, Fauquier’s president and chief executive officer, who will become the president and chief executive officer of Virginia National Bank after the merger;

 

   

the proportionate equity ownership of legacy Virginia National shareholders in the combined company;

 

   

the anticipated impact on the communities served by Virginia National and Fauquier, and the increased ability to serve the communities and its customer base with responsive commercial banking services and a larger branch network;

 

   

the likelihood that the merger will be completed on a timely basis, including the likelihood that the merger will receive all necessary regulatory approvals in a timely manner; and

 

   

the ability of Virginia National’s management team to successfully integrate and operate the businesses of Virginia National and Fauquier after the merger.

The Virginia National Board also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including, without limitation, the following:

 

   

the challenges of integrating Fauquier’s business, operations and employees with those of Virginia National;

 

   

the risk that the benefits and cost savings sought in the merger would not be fully realized;

 

   

the substantial merger and integration related expenses;

 

   

the fact that certain of Virginia National’s directors and executive officers have other interests in the merger that are different from, or in addition to, their interests as Virginia National shareholders, as described in more detail in the section entitled “– Interests of Virginia National Directors and Executive Officers in the Merger”;

 

   

the risk that the merger would not be consummated;

 

   

the effects of the public announcement of the merger on Virginia National’s customer relationships and its ability to retain employees;

 

   

the effects of the COVID-19 pandemic on Virginia National and Fauquier and how those effects could impact the success of the merger and the combined company; and

 

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the risks of the type and nature described under “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

In the judgment of the Virginia National Board, the potential benefits of the merger outweigh these considerations.

The preceding discussion of the information and factors considered by the Virginia National Board is not intended to be exhaustive, but, rather, includes all of the material factors considered by it in connection with its evaluation of the merger. In reaching its determination to approve and adopt the merger agreement and recommend that Virginia National shareholders approve the merger agreement, the Virginia National Board did not quantify, rank or otherwise assign any relative or specific weights to the factors considered in reaching that determination. In addition, the Virginia National Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Moreover, in considering the information and factors described above, individual directors may have given differing weights to different factors. The Virginia National Board based its determination on the totality of the information presented.

The Virginia National Board unanimously determined that the merger agreement is in the best interests of Virginia National and its shareholders. Accordingly, the Virginia National Board unanimously approved and adopted the merger agreement and unanimously recommends that shareholders vote “FOR” the Virginia National merger proposal.

Opinion of Virginia National’s Financial Advisor

On September 30, 2020, Performance Trust rendered its opinion to the Virginia National Board to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Performance Trust as set forth in its opinion, the per share merger consideration in the merger was fair, from a financial point of view, to holders of Virginia National’s common stock.

Performance Trust’s opinion was directed to the Virginia National Board and only addressed the fairness, from a financial point of view, of the per share merger consideration to holders of Virginia National’s common stock and did not address any other aspect or implication of the merger. The references to Performance Trust’s opinion in this joint proxy statement/prospectus are qualified in their entirety by reference to the full text of Performance Trust’s written opinion, which is included as Appendix B to this joint proxy statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Performance Trust in preparing its opinion. However, neither Performance Trust’s opinion, nor the summary of its opinion and the related analyses set forth in this joint proxy statement/prospectus are intended to be, and they do not constitute, advice or a recommendation to the Virginia National Board or any shareholder of Virginia National as to how to act or vote with respect to any matter relating to the merger agreement or otherwise. Performance Trust’s opinion was furnished for the use and benefit of the Virginia National Board (in its capacity as such) in connection with its evaluation of the merger and should not be construed as creating, and Performance Trust will not be deemed to have, any fiduciary duty to the Virginia National Board, Virginia National, any security holder or creditor of Virginia National or any other person, regardless of any prior or ongoing advice or relationships.

In issuing its opinion, among other things, Performance Trust:

 

  (i)

reviewed a draft, dated September 28, 2020, of the merger agreement;

 

  (ii)

reviewed certain publicly available business and financial information relating to Fauquier and its subsidiary, The Fauquier Bank, and Virginia National and its subsidiary, Virginia National Bank;

 

  (iii)

reviewed certain other business, financial, and operating information relating to Fauquier, The Fauquier Bank, Virginia National, and Virginia National Bank provided to Performance Trust by the management of Fauquier and Virginia National, including financial forecasts for Fauquier for the 2020 to 2025 fiscal years ending December 31, and financial forecasts for Virginia National for the 2020 to 2025 fiscal years ending December 31;

 

  (iv)

met with, either by phone or in person, certain members of the management of Fauquier and Virginia National to discuss the business and prospects of Fauquier and Virginia National and the merger;

 

  (v)

reviewed certain terms of the proposed transaction and compared certain of those terms with the publicly available terms of certain transactions that have recently been effected or announced;

 

  (vi)

reviewed certain financial data of Fauquier and Virginia National, and compared that data with similar data for companies with publicly traded equity securities that Performance Trust deemed relevant;

 

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  (vii)

reviewed the stock price performance of Virginia National and Fauquier since September 30, 2019 and since the 2016 presidential election and compared that to the performance of selected companies and indexes; and

 

  (viii)

considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that Performance Trust deemed relevant.

In connection with its review, Performance Trust has not independently verified any of the foregoing information and Performance Trust has assumed and relied upon such information being complete and accurate in all material respects. With respect to the financial forecasts for Virginia National that Performance Trust used in its analyses, the management of Virginia National has advised Performance Trust, and Performance Trust has assumed, that such forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Virginia National as to the future financial performance of Virginia National and Performance Trust expresses no opinion with respect to such estimates or the assumptions on which they are based. Performance Trust has relied upon and assumed, without independent verification, that there has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Virginia National and Fauquier since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Performance Trust that would be material to its analyses or its opinion, and that there is no information or any facts that would make any of the information reviewed by Performance Trust incomplete or misleading. Performance Trust has also assumed, with Virginia National’s consent, that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on Virginia National, Fauquier or the contemplated benefits of the merger and that the merger will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any term, condition or provision thereof that would be material to Performance Trust’s analyses or opinion. Performance Trust has assumed, with Virginia National’s consent, that the merger agreement, when executed by the parties thereto, conformed to the draft reviewed by Performance Trust in all respects material to its analyses.

Performance Trust’s opinion only addresses the fairness, from a financial point of view, of the per share merger consideration to the holders of Virginia National’s common stock in the manner set forth in the full text of its opinion, which is included as Appendix B, and the opinion does not address any other aspect or implication of the merger or any agreement, arrangement or understanding entered into in connection with the merger or otherwise, including, without limitation, the amount or nature of, or any other aspect relating to, any compensation to any officers, trustees, directors or employees of any party to the merger, or class of such persons, relative to the merger consideration or otherwise.

The issuance of Performance Trust’s opinion was approved by an authorized internal committee of Performance Trust.

Performance Trust’s opinion was necessarily based upon information made available to it as of the date the opinion was rendered on September 30, 2020 and financial, economic, market and other conditions as they existed and could be evaluated on the date the opinion was delivered. Performance Trust has no obligation to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring after the date the opinion was delivered. Performance Trust’s opinion does not address the relative merits of the merger as compared to alternative transactions or strategies that might be available to Virginia National, nor does it address the underlying business decision of Virginia National or the Virginia National Board to approve, recommend or proceed with the merger. Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained from the appropriate professional sources. Furthermore, Performance Trust has relied on, with Virginia National’s consent, advice of the outside counsel and the independent accountants of Virginia National, and on the assumptions of the management of Virginia National, as to all legal, regulatory, accounting, insurance and tax matters with respect to Virginia National, Fauquier, and the merger.

In preparing its opinion to the Virginia National Board, Performance Trust performed a variety of analyses, including those described below. The summary of Performance Trust’s analyses is not a complete description of the analyses underlying Performance Trust’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of those methods to the unique facts and circumstances presented. As a consequence, neither Performance Trust’s opinion nor the analyses underlying its opinion are readily susceptible to partial analysis or summary description. Performance Trust arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, Performance Trust believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

In performing its analyses, Performance Trust considered business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. While the results of each

 

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analysis were taken into account in reaching its overall conclusion with respect to fairness, Performance Trust did not make separate or quantifiable judgments regarding individual analyses. The implied value reference ranges indicated by Performance Trust’s analyses are illustrative and not necessarily indicative of actual values nor predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond Virginia National’s control, Fauquier’s control, and Performance Trust’s control. Much of the information used in, and accordingly the results of, Performance Trust’s analyses are inherently subject to substantial uncertainty.

Performance Trust’s opinion and analyses were provided to the Virginia National Board in connection with its consideration of the merger and were among many factors considered by the Virginia National Board in evaluating the merger. Neither Performance Trust’s opinion nor its analyses were determinative of the merger consideration or of the views of the Virginia National Board with respect to the merger.

The following is a summary of the material financial analyses performed in connection with Performance Trust’s opinion rendered to the Virginia National Board on September 30, 2020. No company or transaction used in the analyses described below is identical or directly comparable to Virginia National or the merger. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Performance Trust’s analyses.

Summary of Aggregate Merger Consideration and Implied Transaction Metrics

Performance Trust reviewed the financial terms of the merger. Based on an assumption that 100% of the outstanding shares of Fauquier common stock would be converted into the right to receive 0.675 shares of Virginia National common, and based on Virginia National’s 20-day volume-weighted average closing stock price per share of $24.76 as of September 30, 2020, Performance Trust calculated an aggregate implied transaction value of approximately $63.4 million. Based upon historical financial information for Virginia National as of or for the last twelve months (“LTM”) ended June 30, 2020, Performance Trust calculated the implied transaction metrics listed in the table below.

 

Transaction Value / Tangible Book Value

     89

Transaction Value / LTM Earnings

     9.6x  

Transaction Value / Assets

     7.7

Core Deposit Premium

     -1.1

Selected Nationwide Transactions Analysis

Performance Trust analyzed publicly available information relating to selected nationwide “mergers of equals” over the last four years that Performance Trust deemed relevant. Performance Trust identified a sufficient number of transactions for purposes of its analysis but may not have included all transactions that might be deemed comparable to the merger. The seven selected transactions used in this analysis included (buyer / seller – announce date):

 

   

Blue Ridge Bankshares, Inc. / Bay Banks of Virginia, Inc. – August 13, 2020

 

   

South State Corp. / CenterState Bank Corp. – January 27, 2020

 

   

First Horizon National Corp. / IBERIABANK Corp. – November 4, 2019

 

   

ChoiceOne Financial Services, Inc. / County Bank Corp. – March 25, 2019

 

   

Riverview Financial Corp. / CBT Financial Corp. – April 20, 2017

 

   

Southern National Bancorp of Virginia, Inc. / Eastern Virginia Bankshares, Inc. – December 13, 2016

 

   

Professional Holding Corp. / Virginia Bancorp, Inc. – November 3, 2016

Performance Trust reviewed relative pro-forma market capitalization, board of directors, and ownership compared with that of the Virginia National / Fauquier merger. The results of the selected transactions analysis are summarized below:

 

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     Virginia
National /
Fauquier
     Selected
Transactions
Median
     Selected
Transactions
25th Percentile
     Selected
Transactions
75th Percentile
 

Relative Market Capitalization Split

     51.4 / 48.6        50.1 / 49.9        46.0 / 54.0        51.4 / 48.6  

Relative Board of Directors Split

     53.8 / 46.2        50.0 / 50.0        50.0 / 50.0        53.8 / 46.2  

Relative Ownership Split

     51.4 / 48.6        51.0 / 49.0        47.0 / 53.0        54.0 / 46.0  

 

Note: values listed in buyer / target format

Fauquier Selected Public Companies Analysis

Performance Trust considered certain financial information for Fauquier and compared it with selected companies whose equity is publicly traded that Performance Trust deemed relevant. The selected public companies listed below include banks with total assets between $500 million and $1 billion, LTM return on average assets between 0.50% and 1.00%, tangible equity to tangible assets between 8.00% and 10.00%, and a minimum 90-day average daily trading volume of 300 shares. Targets of announced mergers were excluded from the group. The selected companies were selected because they were deemed similar to Fauquier in one or more respects. Except as described above, no specific numeric or other similar criteria were used to select the selected companies, and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. Performance Trust identified a sufficient number of companies for purposes of its analysis but may not have included all publicly traded companies that might be deemed comparable to Fauquier. The 24 selected companies used in this analysis included:

 

   

1st Capital Bank – Salinas, CA

 

   

American River Bankshares – Rancho Cordova, CA

 

   

American Riviera Bank – Santa Barbara, CA

 

   

Bank of Botetourt – Buchanan, VA

 

   

Coastal Carolina Bancshares, Inc. – Myrtle Beach, SC

 

   

Cortland Bancorp – Cortland, OH

 

   

F & M Bank Corp. – Timberville, VA

 

   

Freedom Bank of Virginia – Fairfax, VA

 

   

GrandSouth Bancorporation – Greenville, SC

 

   

Jonestown Bank and Trust Co. – Jonestown, PA

 

   

Juniata Valley Financial Corp. – Mifflintown, PA

 

   

Mauch Chunk Trust Financial Corp. – Jim Thorpe, PA

 

   

Parkway Acquisition Corp. – Floyd, VA

 

   

Pinnacle Bank – Gilroy, CA

 

   

Potomac Bancshares, Inc. – Charles Town, WV

 

   

Prime Meridian Holding Co. – Tallahassee, FL

 

   

River Valley Community Bancorp – Yuba City, CA

 

   

Sound Financial Bancorp, Inc. – Seattle, WA

 

   

Sound Atlantic Bancshares, Inc. – Myrtle Beach, SC

 

   

SouthCrest Financial Group, Inc. – Atlanta, GA

 

   

Southern Michigan Bancorp, Inc. – Coldwater, MI

 

   

Touchstone Bankshares, Inc. – Prince George, VA

 

   

United Bancorp, Inc. – Martins Ferry, OH

 

   

Westbury Bancorp, Inc. – West Bend, WI

Performance Trust reviewed financial data for the selected companies, including trading value to tangible book value and trading value to LTM earnings. Furthermore, Performance Trust applied the median, 25th percentile, and 75th percentile multiples of the selected companies to Fauquier’s corresponding financial metrics as of June 30, 2020 to determine the implied aggregate deal value and then compared those implied aggregate deal values to the implied merger consideration of $63.4 million in the proposed transaction. The analysis was based on pricing data as of September 30, 2020. The results of the Fauquier selected companies analysis are summarized below.

 

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     Proposed
Transaction
Multiples
    Selected
Companies
Median
    Selected
Companies
25th Percentile
    Selected
Companies
75th Percentile
 

Trading Price / Tangible Book Value

     89     77     72     92

Trading Price / LTM Earnings

     9.6x       10.5x       9.2x       12.9x  

 

     Proposed
Consideration
($000s)
     Implied Value
Median
($000s)
     Implied Value
Low
($000s)
     Implied Value
High
($000s)
 

Trading Price / Tangible Book Value

   $ 63,421      $ 54,615      $ 51,356      $ 65,622  

Trading Price / LTM Earnings

   $ 63,421      $ 69,011      $ 60,536      $ 84,801  

Dividend Discount Analysis – Valuation

Performance Trust analyzed the discounted present value of Fauquier’s projected free cash flows to equity for the years ending December 31, 2020 through December 31, 2024 on a standalone basis. Performance Trust calculated cash flows assuming Fauquier would maintain an 8.00% tangible common equity to tangible assets ratio, and that it would retain sufficient earnings to maintain that ratio and dividend out any excess cash flows. This analysis was based on the financial forecasts for Fauquier prepared by Fauquier management and approved for use in this analysis by Fauquier management.

Performance Trust applied price to tangible book value multiples, ranging from 80% to 100%, to Fauquier’s projected December 31, 2024 tangible book value and price to earnings multiples, ranging from 8.0x to 12.0x, to Fauquier’s projected calendar year 2024 net income in order to derive a range of projected terminal values for Fauquier at December 31, 2024. The projected cash flows and terminal values were discounted using a rate ranging from 13.50% to 15.50%, which reflected the cost of equity capital for Virginia National using a discount rate build-up method based on the sum of the risk-free free rate, industry equity risk premium, supply-side long term equity premium, and Center for Research in Security Prices deciles size premium. Performance Trust reviewed the range of aggregate prices derived in the dividend discount analysis and compared them to the implied merger consideration of $63.4 million in the proposed transaction. The results of the dividend discount analysis are summarized below.

 

     Proposed
Consideration
($000s)
     Implied Value
Median
($000s)
     Implied Value
Low
($000s)
     Implied Value
High
($000s)
 

Terminal Value Based on TBV Multiple

   $ 63,421      $ 57,162      $ 50,847      $ 63,529  

Terminal Value Based on P/E Multiple

   $ 63,421      $ 61,431      $ 50,675      $ 72,578  

Additionally, Performance Trust analyzed the discounted present value of Virginia National’s projected free cash flows to equity for the same period on a standalone basis. Key assumptions for the analysis were consistent with those used for Fauquier’s dividend discount analysis. This analysis was based on the financial forecasts for Virginia National prepared by Virginia National management and approved for use in this analysis by Virginia National management. The results of Virginia National’s dividend discount analysis were compared with those of Fauquier to determine an implied range of exchange ratios. A 10% merger premium was applied to the results of Fauquier’s dividend discount analysis to arrive at the values below:

 

     Proposed
Consideration
(x)
   Implied Value
Median
(x)
   Implied Value
Low
(x)
   Implied Value
High
(x)

Exchange Ratio Based on TBV Multiple

   0.675    0.686    0.674    0.697

Exchange Ratio Based on P/E Multiple

   0.675    0.661    0.644    0.673

Virginia National Selected Public Companies Analysis

Performance Trust considered certain financial information for Virginia National and compared it with selected companies whose equity is publicly traded that Performance Trust deemed relevant. The selected public companies listed below include banks with total assets between $500 million and $1 billion, LTM return on average assets between 0.75% and 1.25%, nonperforming

 

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assets to total assets of under 0.50%, and a minimum 90-day average daily trading volume of 100 shares. Targets of announced mergers were excluded. The selected companies were selected because they were deemed similar to Virginia National in one or more respects. Except as described above, no specific numeric or other similar criteria were used to select the selected companies, and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. Performance Trust identified a sufficient number of companies for purposes of its analysis but may not have included all publicly traded companies that might be deemed comparable to Virginia National. The 12 selected companies used in this analysis included:

 

   

1st Capital Bank – Salinas, CA

 

   

American Riviera Bank – Santa Barbara, CA

 

   

Auburn National Bancorp., Inc. – Auburn, AL

 

   

Bank of San Francisco – San Francisco, CA

 

   

CITBA Financial Corp. – Mooresville, IN

 

   

Commencement Bancorp, Inc. – Tacoma, WA

 

   

CommerceWest Bank – Irvine, CA

 

   

First Capital, Inc. – Corydon, IN

 

   

Pinnacle Bank – Gilroy, CA

 

   

Summit Bank – Eugene, OR

 

   

Summit State Bank – Santa Rosa, CA

 

   

York Traditions Bank – York, PA

Performance Trust reviewed financial data for the selected companies, including trading value to tangible book value and trading value to LTM earnings. The analysis was based on pricing data as of September 30, 2020. The table below indicates the selected financial data for Virginia National and the median, 25th percentile, and 75th percentile for the Virginia National selected companies peer group.

 

     Virginia
National
Multiples
    Selected
Companies
Median
    Selected
Companies
25th Percentile
    Selected
Companies
75th Percentile
 

Trading Value / Tangible Book Value

     82     90     70     107

Trading Value / LTM Earnings

     9.5x       9.8x       8.3x       10.4x  

Relative Stock Price Performance Analysis

Performance Trust reviewed the historical price performance of Virginia National and Fauquier common stock for the one year period preceding September 30, 2020 and the period between the U.S. Presidential election on November 8, 2016 and September 30, 2020. Performance Trust then compared the relationship between the stock price performance of the Virginia National and Fauquier common stock to movements in the Virginia National and Fauquier peer groups as well as certain stock indices. The Virginia National and Fauquier peer groups include the selected public companies listed previously. The price performance as of each ending reference date is shown as a percentage of the price as of the starting date.

The results of the relative stock price performance analysis are summarized below.

One Year Stock Price Performance

 

     September 30,
2019
    One-Year
(through
September 30,
2020)
 

Virginia National

     100     65

Virginia National Peer Group

     100     68

Fauquier

     100     75

Fauquier Peer Group

     100     77

Nasdaq Bank Index

     100     71

S&P 500 Index

     100     114

 

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Since 2016 Presidential Election Stock Price Performance

 

     November 8,
2016
    Since
Presidential
Election
(through
September 30,
2020)
 

Virginia National

     100     92

Virginia National Peer Group

     100     118

Fauquier

     100     98

Fauquier Peer Group

     100     100

Nasdaq Bank Index

     100     71

S&P 500 Index

     100     154

Other Matters

Virginia National engaged Performance Trust as financial advisor in connection with the potential merger based on Performance Trust’s experience, reputation, and familiarity with Virginia National’s business. Performance Trust has an investment banking division and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions. Performance Trust will receive an investment banking fee for its services in an amount equal to 0.115% of Fauquier’s total assets as of the end of the month prior to the closing of the merger, $40,000 of which was paid by Virginia National upon the execution of the merger agreement and the balance of which is contingent upon consummation of the merger. Virginia National has also previously paid Performance Trust a fee of $10,000 in connection with its engagement and a fee of $25,000 upon delivery of its fairness opinion, neither of which will be credited against the remainder of Performance Trust’s investment banking fee if the merger is completed. In addition, Virginia National has agreed to indemnify Performance Trust and certain related parties for certain liabilities arising out of or related to the engagement and to reimburse Performance Trust for certain expenses incurred in connection with its engagement.

Except in connection with the present engagement, in the two years preceding the date of Performance Trust’s opinion, Performance Trust and its predecessor, Banks Street Partners, LLC, provided investment banking and financial advisory services to Virginia National but did not receive any compensation for such services or enter into any engagement agreement in connection therewith. In the two years preceding the date of Performance Trust’s opinion, Performance Trust did not provide investment banking or financial advisory services to Fauquier.

Performance Trust is a broker-dealer engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, Performance Trust and its affiliates may acquire, hold or sell, for its and its affiliates own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Virginia National, Fauquier and certain of their affiliates as well as provide investment banking and other financial services to such companies and entities.

Fauquier’s Reasons for the Merger; Recommendation of the Fauquier Board

In reaching its decision to approve and adopt the merger agreement, and to recommend the merger agreement to Fauquier shareholders, the Fauquier Board consulted with Fauquier’s management and its financial and legal advisors, and considered a number of factors, including, among others, the following principal factors which are not presented in order of priority:

 

   

the reviews undertaken by the Fauquier Board and management with respect to the business strategy of Fauquier and its prospects for the future as an independent financial institution, and the strategic alternatives available to Fauquier;

 

   

the reviews undertaken by the Fauquier Board of the prospects, challenges and risks facing Fauquier in the current competitive, economic, financial and regulatory environment, and the potential benefits of Fauquier entering into a strategic combination with another financial institution to form a larger organization;

 

   

Fauquier’s knowledge of Virginia National’s financial condition, earnings, business operations and prospects, taking into account the results of Fauquier’s extensive due diligence investigation of Virginia National;

 

   

advantages of being part of a larger institution that is expected to have over $1.7 billion in assets and $1.1 billion in assets under management, including a better ability to leverage overhead costs and the potential for operating efficiencies and

 

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increased profitability, particularly in light of the regulatory and competitive environments and the effects of consolidation in the financial services industry;

 

   

the strategic opportunities associated with expansion into complementary geographic markets in which Virginia National operates, the ability to leverage the combined company’s larger size and increased visibility to expand into attractive Northern Virginia markets, and the ability to expand the combined company into attractive, high growth markets;

 

   

the compatibility of Fauquier’s business, operations and culture with those of Virginia National;

 

   

the attractiveness of Virginia National’s commercial banking franchise;

 

   

the expectation that the combined company will be better positioned to compete and grow its business and will have superior future earnings and prospects compared to Fauquier on an independent basis;

 

   

the expectation that the combined company will be able to leverage a higher legal lending limit to more effectively serve larger customers and accounts;

 

   

the financial analysis performed by Piper Sandler and the opinion delivered to the Fauquier Board (in its capacity as such) by Piper Sandler on September 28, 2020, and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Piper Sandler in preparing the opinion, the fairness, from a financial point of view, of the exchange ratio in the merger pursuant to the merger agreement to holders of Fauquier’s common stock, as more fully described below in the section titled “– Opinion of Fauquier’s Financial Advisor”;

 

   

the financial and other terms of the merger agreement, including the deal protection, termination fee and corporate governance provisions (including the relative representation on the board of directors of the combined company), which it reviewed with its outside financial and legal advisors;

 

   

Fauquier’s expectations and analyses of the financial metrics of the merger, including potential cost saving opportunities and expected earnings per share and dividends per share accretion for shareholders of Fauquier;

 

   

the proportionate equity ownership of legacy Fauquier shareholders in the combined company;

 

   

the greater potential for increased liquidity in the market for common stock and higher trading multiples of the combined company compared to a company of Fauquier’s current size, including in light of Virginia National’s plans to pursue a listing on a national stock exchange for shares of Virginia National common stock;

 

   

the corporate governance and social aspects of the merger, including the strength and depth of experience of members of Virginia National’s management team and employees, the fact that Marc J. Bogan, Fauquier’s president and chief executive officer, will become the president and chief executive officer of Virginia National Bank after the merger, and that six legacy Fauquier directors will join the Virginia National Board after the merger;

 

   

the anticipated impact on the communities served by Fauquier and Virginia National, and the increased ability to serve the combined company’s communities and customer base with a wider range of banking products and services and a larger branch network;

 

   

the market for alternative merger or acquisition transactions in the financial services industry and the likelihood and timing of other material strategic transactions;

 

   

the likelihood that the merger will be completed on a timely basis, including the likelihood that the merger will receive all required regulatory and shareholder approvals in a timely manner; and

 

   

the ability of Virginia National and Fauquier to integrate and operate the lines of business of Virginia National and Fauquier as a combined company following the merger.

The Fauquier Board also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberations on the merger, including, without limitation, the following, which are not presented in order of priority:

 

   

the fact that Fauquier would be prohibited from soliciting acquisition proposals after execution of the merger agreement, and the possibility that, while it was not viewed as precluding other proposals, the $2.5 million termination fee payable to

 

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Virginia National upon the termination of the merger agreement under certain circumstances could potentially discourage certain other potential acquirers from making a competing offer to acquire Fauquier;

 

   

the potential risks and costs associated with integrating Virginia National’s and Fauquier’s businesses, operations and workforces;

 

   

the risk that potential benefits and synergies sought in the merger may not be realized or may not be realized within the expected time periods;

 

   

the impacts of and uncertainty surrounding the COVID-19 pandemic on Virginia National, Fauquier and U.S. financial markets, and how the effects of the COVID-19 pandemic could impact the success of the merger and the combined company;

 

   

the substantial merger and integration related expenses;

 

   

the fact that certain of Fauquier’s directors and executive officers have other interests in the merger that are different from, or in addition to, their interests as Fauquier shareholders, as described in more detail in the section entitled “– Interests of Fauquier Directors and Executive Officers in the Merger”;

 

   

the possibility that the merger and the integration process could result in employee attrition and have a negative effect on business and customer relationships;

 

   

the fact that, while Fauquier expects that the merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, including the risk that certain regulatory approvals, the receipt of which are conditions to the closing of the merger, might not be obtained, and as a result, the merger may not be completed;

 

   

while the merger is pending, Fauquier’s officers and employees will have to focus extensively on actions required to complete the merger, which could divert their attention from Fauquier’s business, and Fauquier will incur substantial costs even if the merger is not consummated;

 

   

while the merger is pending, Fauquier will be subject to certain customary restrictions on the conduct of its business, which may delay or prevent it from pursuing business opportunities that may arise, or preclude it from taking actions that would be advisable if it was to remain independent;

 

   

the risks of the type and nature described under “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors;” and

 

   

the possibility of litigation in connection with the merger.

The preceding discussion of the information and factors considered by the Fauquier Board is not intended to be exhaustive, but, rather, includes all of the material factors considered by it in connection with its evaluation of the merger. In reaching its determination to approve and adopt the merger agreement and recommend that Fauquier shareholders approve the merger agreement, the Fauquier Board did not quantify, rank or otherwise assign any relative or specific weights to the factors considered in reaching that determination. In addition, the Fauquier Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Moreover, in considering the information and factors described above, individual directors may have given differing weights to different factors. The Fauquier Board based its determination on the totality of the information presented.

The Fauquier Board unanimously determined that the merger agreement is in the best interests of Fauquier and its shareholders. Accordingly, the Fauquier Board unanimously approved and adopted the merger agreement and unanimously recommends that shareholders vote “FOR” the Fauquier merger proposal.

This explanation of the Fauquier Board’s reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

 

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Opinion of Fauquier’s Financial Advisor

Fauquier retained Piper Sandler to act as financial advisor to the Fauquier Board in connection with Fauquier’s consideration of a possible business combination. Fauquier selected Piper Sandler to act as its financial advisor because Piper Sandler is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Piper Sandler is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Piper Sandler acted as financial advisor to the Fauquier Board in connection with the merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the September 28, 2020 meeting at which the Fauquier Board considered the merger and the merger agreement, Piper Sandler delivered to the Fauquier Board its oral opinion, which was subsequently confirmed in writing on September 28, 2020, to the effect that, as of such date, the exchange ratio was fair to the holders of Fauquier common stock from a financial point of view. The full text of Piper Sandler’s opinion is attached as Appendix C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of Fauquier common stock are urged to read the entire opinion carefully in connection with their consideration of the merger.

Piper Sandler’s opinion was directed to the Fauquier Board in connection with its consideration of the merger and the merger agreement and does not constitute a recommendation to any shareholder of Fauquier as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger and the merger agreement. Piper Sandler’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of Fauquier common stock and did not address the underlying business decision of Fauquier to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for Fauquier or the effect of any other transaction in which Fauquier might engage. Piper Sandler also did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of Fauquier or Virginia National, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder. Piper Sandler’s opinion was approved by Piper Sandler’s fairness opinion committee.

In connection with its opinion, Piper Sandler reviewed and considered, among other things:

 

   

a draft of the merger agreement, dated September 27, 2020;

 

   

certain publicly available financial statements and other historical financial information of Fauquier that Piper Sandler deemed relevant;

 

   

certain publicly available financial statements and other historical financial information of Virginia National that Piper Sandler deemed relevant;

 

   

certain internal financial projections for Fauquier for the years ending December 31, 2020 through December 31, 2024, as provided by the senior management of Fauquier;

 

   

certain internal financial projections for Virginia National for the years ending December 31, 2020 through December 31, 2024, as provided by the senior management of Virginia National;

 

   

the pro forma financial impact of the merger on Virginia National based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior managements of Virginia National;

 

   

the relative contributions of assets, liabilities, equity and earnings of Fauquier and Virginia National to the combined entity, as well as their respective business models, deposit bases, branch locations and opportunities for synergies and cost savings as a result of the merger, as discussed with the senior management of Fauquier;

 

   

the publicly reported historical price and trading activity for Fauquier common stock and Virginia National common stock, including a comparison of certain stock market information for Fauquier common stock and Virginia National common stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded;

 

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a comparison of certain financial information for Fauquier and Virginia National with similar financial institutions for which information is publicly available;

 

   

the current market environment generally and the banking environment in particular; and

 

   

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Piper Sandler considered relevant.

Piper Sandler also discussed with certain members of the senior management of Fauquier and its representatives the business, financial condition, results of operations and prospects of Fauquier and held similar discussions with certain members of the management of Virginia National and its representatives regarding the business, financial condition, results of operations and prospects of Virginia National.

In performing its review, Piper Sandler relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Piper Sandler from public sources, that was provided to Piper Sandler by Fauquier, Virginia National or their respective representatives, or that was otherwise reviewed by Piper Sandler, and Piper Sandler assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Piper Sandler relied on the assurances of the respective managements of Fauquier and Virginia National that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading in any respect material to its analysis. Piper Sandler was not asked to perform and did not undertake an independent verification of any of such information and Piper Sandler did not assume any responsibility or liability for the accuracy or completeness thereof. Piper Sandler did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Fauquier or Virginia National, nor was Piper Sandler furnished with any such evaluations or appraisals. Piper Sandler rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of Fauquier or Virginia National. Piper Sandler did not make an independent evaluation of the adequacy of the allowance for loan losses of Fauquier or Virginia National, or of the combined entity after the merger, and Piper Sandler did not review any individual credit files relating to Fauquier or Virginia National. Piper Sandler assumed, with Fauquier’s consent, that the respective allowances for loan losses for both Fauquier and Virginia National were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Piper Sandler used certain internal financial projections for Fauquier for the years ending December 31, 2020 through December 31, 2024, as provided by the senior management of Fauquier. In addition, Piper Sandler used certain internal financial projections for Virginia National for the years ending December 31, 2020 through December 31, 2024, as provided by the senior management of Virginia National. Piper Sandler also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of Virginia National. With respect to the foregoing information, the respective senior managements of Fauquier and Virginia National confirmed to Piper Sandler that such information reflected the best currently available projections, estimates and judgments of those respective managements as to the future financial performance of Fauquier and Virginia National, respectively, and the other matters covered thereby, and Piper Sandler assumed that the future financial performance reflected in such information would be achieved. Piper Sandler expressed no opinion as to such information, or the assumptions on which such information was based. Piper Sandler also assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of Fauquier or Virginia National since the date of the most recent financial statements made available to Piper Sandler. Piper Sandler assumed in all respects material to its analysis that Fauquier and Virginia National would remain as going concerns for all periods relevant to its analysis.

Piper Sandler also assumed, with Fauquier’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Fauquier, Virginia National, the merger or any related transactions, and (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with Fauquier’s consent, Piper Sandler relied upon the advice that Fauquier received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. Piper Sandler expressed no opinion as to any such matters.

Piper Sandler’s opinion was necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to Piper Sandler as of, the date thereof. Events occurring after the date thereof could materially

 

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affect Piper Sandler’s opinion. Piper Sandler has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. Piper Sandler expressed no opinion as to the trading value of Fauquier common stock or Virginia National common stock at any time or what the value of Virginia National common stock would be once it is actually received by the holders of Fauquier common stock.

In rendering its opinion, Piper Sandler performed a variety of financial analyses. The summary below is not a complete description of all the analyses underlying Piper Sandler’s opinion or the presentation made by Piper Sandler to the Fauquier Board, but is a summary of the material analyses performed and presented by Piper Sandler. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Piper Sandler believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Piper Sandler’s comparative analyses described below is identical to Fauquier or Virginia National and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or transaction values, as the case may be, of Fauquier and Virginia National and the companies to which they were compared. In arriving at its opinion, Piper Sandler did not attribute any particular weight to any analysis or factor that it considered. Rather, Piper Sandler made qualitative judgments as to the significance and relevance of each analysis and factor. Piper Sandler did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Piper Sandler made its determination as to the fairness of the exchange ratio to the holders of Fauquier common stock on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Piper Sandler also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of Fauquier, Virginia National, and Piper Sandler. The analyses performed by Piper Sandler are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Piper Sandler prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the Fauquier Board at its September 28, 2020 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Piper Sandler’s analyses do not necessarily reflect the value of Fauquier common stock or Virginia National common stock or the prices at which Fauquier or Virginia National common stock may be sold at any time. The analyses of Piper Sandler and its opinion were among a number of factors taken into consideration by the Fauquier Board in making its determination to approve the merger agreement and the analyses described below should not be viewed as determinative of the decision of the Fauquier Board with respect to the fairness of the exchange ratio.

Summary of Proposed Transaction Consideration and Implied Transaction Metrics.

Piper Sandler reviewed the financial terms of the merger. Pursuant to the terms of the merger agreement, at the effective time of the merger each share of Fauquier common stock issued and outstanding immediately prior to the effective time of the merger, except for certain shares as set forth in the merger agreement, shall be converted into the right to receive 0.675 of a share of common stock of Virginia National. Based on the closing price per share of Virginia National common stock on September 25, 2020 of $24.00 and based upon 3,794,725 shares of Fauquier common stock outstanding and 25,374 Fauquier restricted stock units outstanding and assumed to be converted into Virginia National common shares at the 0.675 exchange ratio, Piper Sandler calculated an aggregate implied transaction value of $61.9 million. Based upon financial information for Fauquier as of or for the last twelve months ended June 30, 2020 and the closing price of Fauquier’s common stock on September 25, 2020, Piper Sandler calculated the following implied transaction metrics:

 

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Transaction Price / Fauquier June 30, 2020 Book Value per Share

     86%

Transaction Price / Fauquier June 30, 2020 Tangible Book Value per Share

     86%

Transaction Price / Fauquier June 30, 2020 LTM Earnings per Share

     9.3x

Transaction Price / Fauquier 2020E Earnings per Share (1)

     10.3x

Transaction Price / Fauquier 2021E Earnings per Share (1)

     9.0x

Tangible Book Premium / Core Deposits (2)

   -1.4%

Tangible Book Premium / Core Deposits (3)

   -1.3%

Premium to Fauquier Market Price as of August 18, 2020 (4)

   14.1%

Premium to Fauquier Market Price as of September 25, 2020

     5.4%

 

(1)

As provided by Fauquier management

(2)

Core deposits defined as total deposits less time deposits with balances greater than $100,000.

(3)

Core deposits defined as total deposits less time deposits with balances greater than $250,000.

(4)

Represents the closing price on the trading day prior to the August 19, 2020 announcement of an investor group’s disclosure of a 9.5% ownership interest in Fauquier.

Contribution Analysis.

Piper Sandler reviewed the relative contributions of Fauquier and Virginia National to the pro forma balance sheet and income of the combined entity. This analysis excluded mark-to-market and other transaction-related adjustments. The results of this analysis are set forth in the following table, which also compares the results of this analysis with the implied pro forma ownership percentages of Fauquier and Virginia National shareholders in the combined company:

 

     Fauquier     Virginia National     Pro Forma  
$ value in millions                                 
Balance Sheet:    $      %     $      %     $  

Net Loans

   $ 616.3        49.5   $ 627.5        50.5   $ 1,244  

Net Loans, Excluding PPP

   $ 563.5        51.0   $ 540.6        49.0   $ 1,104  

Total Assets

   $ 825.6        50.8   $ 799.6        49.2   $ 1,625  

Total Deposits

   $ 705.8        49.7   $ 714.2        50.3   $ 1.420  

Total Equity

   $ 71.1        47.3   $ 79.1        52.7   $ 150  

Tangible Common Equity

   $ 71.1        47.6   $ 78.3        52.4   $ 149  

Earnings:

            

Year-to-date Pre-tax Pre-Provision Net Revenue

   $ 4.6        45.8   $ 5.5