BV Financial, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. BV Financial is a Baltimore-area community banking holding company whose subsidiary, BayVanguard Bank, primarily gathers deposits and makes real estate, commercial, marine and consumer loans. The filing was signed June 29, 2023.
Key financial results
Amounts below are in millions, except per-share data and ratios. Income and cash flow comparisons are to Q1 2022; balance-sheet comparisons are to December 31, 2022.
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Interest income | $9.688 | $7.413, up 30.7% |
| Net interest income | $8.200 | $6.542, up 26.1% |
| Net interest margin | 4.34% | 3.49%, up 85 basis points |
| Provision for credit losses | $0.002 | $0.177 |
| Noninterest income | $0.807 | $1.488 |
| Noninterest expense | $4.700 | $4.358, up 7.8% |
| Net income; diluted EPS | $3.115; $0.42 | $2.417; $0.33 |
| Total assets | $857.5 | $845.0, up 1.5% |
| Net loans | $672.8 | $659.1, up 2.1% |
| Total deposits | $667.0 | $684.6, down 2.6% |
| Cash and cash equivalents | $64.6 | $68.7 |
| Total stockholders’ equity | $100.7 | $97.8 |
Cash flow: Operating activities provided $3.6 million; investing activities used $17.3 million; financing activities provided $9.7 million. Cash and cash equivalents declined $4.0 million during the quarter.
Debt and liquidity: FHLB advances were $37.5 million at 5.07%, compared with $12.0 million at year-end; the advances mature in 2023. Subordinated debentures were $37.1 million, and total borrowings net of adjustments were $74.6 million. The Bank reported $70.1 million available under an FHLB line and $40.0 million of unfunded letters of credit securing municipal deposits against that line. Management said it monitors liquidity daily and expects sufficient funds for current commitments; it may use further FHLB advances or raise deposit rates if deposit retention is weaker than expected.
Material changes and asset quality
- Loan growth was concentrated in commercial real estate and construction. Commercial investor real estate was 36.76% of loans at quarter-end; management cited demand for non-office commercial properties and draws on existing construction lines.
- Deposits fell $17.6 million, including a $14.5 million January decline attributed mainly to routine commercial customer distributions, alternative investments and capital spending. Noninterest-bearing deposits declined $15.5 million. Management reported no measurable rise in customer inquiries or withdrawals during early-March banking turmoil.
- Interest income benefited from higher loan balances and yields: average loan yield rose to 5.33% from 4.75%. Interest expense rose 70.8% to $1.5 million as deposit costs increased and the Bank used FHLB advances. Average interest-bearing deposit cost was 0.53%, versus 0.28%.
- The allowance for credit losses was $8.1 million, or 1.19% of loans. Adoption of CECL on January 1 increased the allowance substantially, including transfer of $3.8 million of remaining acquisition credit marks; the transition reduced opening retained earnings by $547,000. The reported Q1 provision was only $2,000, so the allowance increase primarily reflects adoption rather than the quarter’s provision.
- Nonaccrual loans declined to $4.6 million, or 0.67% of loans, from $5.9 million, or 0.88%, at year-end. The Bank reported $6.7 million of loans past due at quarter-end. Foreclosed real estate was $2.0 million; related holding costs increased to $127,000 from $10,000 a year earlier.
- Available-for-sale securities had $2.86 million of gross unrealized losses; held-to-maturity securities had $833,000. Management attributed these losses to interest-rate changes, not credit concerns, and reported no credit losses on available-for-sale securities.
Management commentary, outlook and risks
Management attributed higher net income mainly to stronger net interest income and a lower credit-loss provision, partly offset by lower noninterest income and higher expenses. Noninterest income was lower partly because Q1 2022 included the $1.34 million bargain-purchase gain from the North Arundel Savings Bank merger, as well as higher loan-related fees. Compensation expense rose with salary and incentive increases and staffing to support growth.
No specific earnings, margin or growth guidance is provided. Management said it expected to retain a significant portion of maturing time deposits, while noting that weaker retention could require more borrowing or higher deposit rates and increase interest expense. Principal disclosed risks include economic weakness and inflation, interest-rate and securities-market changes, deposit liquidity and funding costs, real estate values, credit quality and allowance estimates, competition, cyber and technology risks, regulation, and acquisition integration. The Bank reported that it exceeded regulatory capital requirements and was well capitalized; its March 31, 2023 total risk-based capital ratio was 18.11%. Management said legal proceedings were not expected to have a material adverse effect. Disclosure controls were concluded to be effective, with no material quarterly change in internal control over financial reporting reported.
Important facts for investors to verify
- The cover-page response to whether the company had filed all required Exchange Act reports during the preceding 12 months is marked “No.” Verify the filing history and reason for this response.
- Assess deposit stability, including the two local-government relationships representing 3.7% and 3.4% of deposits, and $31.2 million of certificates of deposit of $250,000 or more that may exceed FDIC insurance limits.
- Review funding capacity and terms: reconcile the reported FHLB line availability, $37.5 million of advances and $40.0 million of letters of credit, and monitor the 2023 advance maturity.
- Track commercial real estate exposure, delinquency trends, collateral values and the adequacy of the CECL allowance; distinguish the accounting transition’s impact from subsequent credit performance.
- Evaluate whether higher asset yields can continue to outpace rising deposit and borrowing costs, and whether the securities’ unrealized losses or deferred tax assets could require future valuation changes.
- Confirm the impact of the June 2023 share count and any subsequent material developments; this filing reports 7,424,595 shares outstanding at March 31, 2023.