FVCBankcorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019; filed November 13, 2019. Financial amounts below are in U.S. dollars. The October 2018 Colombo Bank acquisition expanded the company’s footprint and affects comparison with 2018.
Financial performance
- Third quarter: Net interest income was $12.1 million, up 22.4% from $9.9 million. Net income was $4.1 million versus $3.4 million; diluted EPS was $0.28 versus $0.27. Basic EPS was $0.30 in both periods.
- Nine months: Net interest income was $36.2 million, up 29.4% from $28.0 million. Net income was $12.1 million versus $9.5 million; diluted EPS was $0.82 versus $0.78.
- Interest margin: Tax-equivalent net interest margin was 3.41% in Q3 2019 versus 3.54% in Q3 2018; for the nine-month periods it was 3.55% versus 3.48%. Rising deposit costs weighed on the quarterly margin.
- Other income and expenses: Q3 noninterest income declined to $0.7 million from $0.75 million, mainly due to lower loan-swap fees. Nine-month noninterest income increased to $2.0 million from $1.5 million. Noninterest expense rose to $7.4 million in Q3 and $21.5 million for nine months, reflecting staffing and operating costs associated with Colombo and growth.
- Credit provision and returns: Provision for loan losses was $0.24 million in Q3 and $1.26 million for nine months. Q3 annualized return on average assets/equity was 1.10%/9.46%; nine-month returns were 1.13%/9.65%.
- Cash flow: Operating activities provided $15.1 million during the first nine months, investing activities used $176.7 million, and financing activities provided $171.6 million. Cash and due from banks ended at $19.4 million, up from $9.4 million at year-end 2018.
Financial position, debt and liquidity
- Total assets were $1.565 billion, up 15.8% from December 31, 2018. Net loans were $1.233 billion, up from $1.128 billion; deposits were $1.318 billion, up from $1.162 billion.
- Loans were concentrated in commercial real estate, including construction, which represented 78.3% of total loans. The allowance for loan losses was $10.1 million, or 0.81% of loans net of deferred fees and costs.
- Total liabilities were $1.390 billion and stockholders’ equity was $175.1 million. Borrowings included $15.0 million of FHLB advances and $24.5 million of subordinated notes. The notes carry a 6.00% rate through June 2021, then reset to three-month LIBOR plus 487 basis points.
- Management reported liquid assets of $248.7 million, or 15.9% of assets, and additional stated borrowing capacity of approximately $131.5 million at the FHLB, $56.8 million at the Federal Reserve, and $199.0 million in unsecured federal-funds lines. The company said it believed liquidity was sufficient.
- The Bank’s total risk-based capital ratio was 13.40% and leverage ratio 12.11%; management said the Bank was “well capitalized.”
Changes, outlook and risks
- Growth in earning assets and loans, from both organic growth and the Colombo acquisition, drove higher net interest income. Higher deposit costs partly offset the benefit: the quarterly cost of interest-bearing deposits rose to 1.82% from 1.36% a year earlier.
- Asset quality weakened versus year-end: nonperforming assets increased to $14.3 million from $7.4 million, and their share of assets rose to 0.91% from 0.55%. Nonperforming loans were $10.4 million; special-mention originated loans were $24.1 million, up $15.5 million, and substandard originated loans were $9.6 million, up $6.8 million. Management said four loans accounted for the special-mention increase and were considered well-secured.
- Management anticipated loan-swap fee income would decline from prior levels in the current yield-curve environment. It stated that liquidity was adequate; the filing provides no specific earnings or growth guidance.
- Key risks include commercial-real-estate concentration, changes in local and national economic conditions and property values, credit deterioration, interest-rate and deposit-cost movements, municipal-deposit concentration, regulatory changes, and the transition away from LIBOR. Municipal deposits were 9.0% of total deposits.
- Merger-related expenses were $51,000 in Q3 and $133,000 for nine months in 2019, versus $274,000 and $671,000 in 2018. Excluding these costs, nine-month diluted EPS was $0.82 in both years. A $111,000 FDIC small-bank assessment credit was recorded in Q3.
- The company adopted lease accounting in 2019, recognizing $13.6 million of right-of-use assets and $14.0 million of lease liabilities at quarter-end. Management reported effective disclosure controls, no material change in internal controls, no material legal proceedings, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the increase in nonperforming loans and criticized commercial real estate exposures continues, and whether collateral values support management’s loss estimates.
- Whether loan and deposit growth can sustain net interest income as deposit pricing and funding costs change.
- The scale and stability of municipal, large-certificate and other concentrated deposits, and the availability and cost of contingent funding.
- The effects of the Colombo integration on expenses, customer retention and future earnings; reported periods are not fully comparable.
- Management’s allowance methodology and its planned implementation of the expected-credit-loss standard, including the applicable adoption date.