FVCBankcorp, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. FVCBankcorp is a Virginia bank holding company operating through FVCbank in the Washington, D.C. and Baltimore metropolitan areas. Financial statements are unaudited.
Financial performance and position
| Metric | Q2 2023 / June 30, 2023 | Comparable period / change |
|---|---|---|
| Net income | $4.2 million; diluted EPS $0.23 | Q2 2022: $6.4 million; $0.35 diluted EPS |
| Net interest income | $14.4 million | Down 14% from $16.8 million |
| Net interest margin | 2.60% for Q2; 2.60% for first half | Q2 2022: 3.30%; first half 2022: 3.23% |
| Six-month net income | $4.9 million; diluted EPS $0.27 | First half 2022: $13.0 million; $0.71 diluted EPS |
| Six-month operating earnings (non-GAAP) | $8.4 million; diluted EPS $0.46 | First half 2022: $13.1 million; $0.71 diluted EPS |
| Total assets | $2.34 billion | Approximately unchanged from year-end 2022 |
| Loans, net | $1.884 billion | Up from $1.824 billion at year-end 2022 |
| Deposits | $2.088 billion | Up $257.9 million, or 14%, from year-end 2022 |
| Stockholders’ equity | $211.1 million; equity/assets 9.0% | $202.4 million; 8.6% at year-end 2022 |
For the six months, net cash provided by operating activities was $5.5 million; investing activities provided $2.5 million; financing activities used $6.9 million. Cash and due from banks ended at $8.3 million, while interest-bearing deposits at other financial institutions were $66.7 million.
Funding costs pressured earnings: Q2 interest expense increased to $12.8 million from $2.2 million a year earlier. The average cost of interest-bearing deposits rose to 3.11% from 0.57%, while the average yield on earning assets rose to 4.89% from 3.73%. The filing attributes the margin decline principally to rising rates and competition for deposits.
At June 30, the company had no federal funds purchased or FHLB advances, compared with $30 million and $235 million, respectively, at year-end 2022. Subordinated notes were $19.6 million. Wholesale deposits were $413.3 million. Available-for-sale securities were $231.2 million at fair value, with $46.9 million of gross unrealized losses; accumulated other comprehensive loss was $30.8 million.
Material changes versus prior periods
- Q2 net income fell 34% year over year, reflecting lower net interest income and higher noninterest expenses.
- First-half GAAP earnings included a $4.6 million pretax ($3.6 million after-tax) loss from the first-quarter sale of $40.3 million of available-for-sale securities. Management said the repositioning was intended to repay higher-cost funding and support loan growth, liquidity, tangible common equity, and future earnings.
- The ACM minority investment generated a $781,000 loss for the first half of 2023, versus $914,000 of income in the first half of 2022.
- Noninterest expense increased 12% in Q2 and 9% for the first half, including higher technology, FDIC insurance, marketing, and loan-workout costs. Management cited approximately $1.0 million in annualized savings expected from first-quarter staffing changes.
- Deposits grew, but the mix shifted toward interest-bearing and time deposits. Estimated uninsured deposits declined to 27.6% of deposits from 39.7% at year-end 2022.
- CECL was adopted January 1, 2023, increasing the allowance for loans and unfunded commitments by $3.7 million and reducing retained earnings by $2.8 million after tax.
Credit, liquidity, capital, outlook, and risks
- Credit quality indicators were generally favorable: nonperforming loans were $1.4 million, or 0.06% of assets, versus $4.5 million, or 0.19%, at year-end 2022. The allowance for loan losses was $19.4 million, or 1.02% of loans; first-half net charge-offs were $333,000.
- Commercial real estate represented approximately 59% of gross loans; the regulatory CRE concentration, including nonowner-occupied real estate and construction, was 403% of risk-based capital. Office loans were $98.9 million and retail loans $269.7 million. Management described underwriting and monitoring practices as disciplined, while acknowledging sensitivity to real estate values and economic conditions.
- Estimated uninsured deposits were $577.1 million. Liquid assets totaled $306.2 million, or 13% of assets; management reported liquidity at 172% of estimated uninsured deposits and approximately $465.4 million of additional FHLB borrowing capacity and $97.6 million of FRB capacity. The company had not used the Bank Term Funding Program in the first half. Management said liquidity was sufficient, but deposit outflows or market disruptions could impair access to funding.
- The Bank reported regulatory capital ratios of 13.28% total risk-based capital, 12.26% CET1, and 10.41% leverage, and management stated it met applicable requirements and was well capitalized. Tangible book value per share was $11.44 at June 30.
- No earnings guidance or quantified forward outlook is provided. Management cautions that interim results are not necessarily indicative of full-year results. Key stated risks include interest-rate and deposit-cost changes, liquidity, CRE and other credit exposure, economic conditions, securities valuation, regulation, and cybercrime.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. It stated that the transition away from LIBOR was complete, with no LIBOR-indexed financial instruments at June 30.
Investor verification priorities
- Track deposit pricing, wholesale funding, uninsured-deposit levels, and liquidity availability as rates and competition evolve.
- Assess whether loan growth and asset repricing can offset higher funding costs and restore net interest margin.
- Review CRE concentration and exposure by property type, particularly office and retail, alongside delinquencies, criticized loans, and CECL allowance assumptions.
- Verify the earnings and liquidity effects of the securities portfolio repositioning, including the remaining unrealized losses and any subsequent sales.
- Monitor ACM investment performance, loan-workout expenses, and whether stated staffing savings are realized.
- Compare GAAP earnings with management’s non-GAAP operating earnings and review the reconciliation and assumptions underlying that measure.