BV Financial, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. BV Financial is a bank holding company whose subsidiary, BayVanguard Bank, serves consumers and businesses, primarily in Maryland. Unless noted otherwise, amounts are in millions of dollars.
Financial performance and position
- Income: Interest income was $11.0 million, up 13.6% year over year, while net interest income declined 2.9% to $8.0 million. Net income fell 17.4% to $2.6 million; diluted EPS was $0.24 versus $0.39.
- Margins and costs: Net interest margin contracted to 3.91% from 4.34%. Average cost of interest-bearing deposits rose to 1.62% from 0.53%; total interest expense more than doubled to $3.0 million.
- Noninterest items: Noninterest income was $0.6 million versus $0.8 million, largely reflecting a $0.235 million life-insurance death benefit in Q1 2023. Noninterest expense increased to $4.9 million from $4.7 million; management cited higher compensation and fraud losses, partly offset by lower professional and foreclosed-real-estate costs.
- Cash flow: Operating cash flow was $4.6 million; investing cash outflow was $3.3 million; financing cash inflow was $3.8 million. Cash and cash equivalents increased $5.1 million to $78.8 million.
- Balance sheet: Total assets were $892.5 million, up 0.8% from year-end. Loans were $708.7 million, up 0.6%; deposits were $639.5 million, up 0.8%; stockholders’ equity was $201.8 million, up 1.3%.
- Credit: The allowance for loan losses was $8.5 million, or 1.20% of loans. Nonaccrual loans totaled $10.7 million, compared with $10.6 million at year-end. Investor commercial real estate represented 41.2% of loans ($292.1 million); $7.8 million in that category was nonaccrual.
- Debt and capital: The company had $34.8 million of subordinated debentures, net, and no FHLB advances at quarter-end. The Bank reported a 19.26% Tier 1 leverage ratio and a 25.19% total risk-based capital ratio, and was categorized as well capitalized.
Material changes versus the prior comparable period
- Loan and cash interest income increased, supported by higher average loan balances and yields and higher income on cash and other interest-earning assets.
- Deposit interest expense rose $1.3 million as rates paid increased and depositors shifted toward higher-cost certificates of deposit. The margin decline reflects funding-cost pressure despite higher asset yields.
- Net income included a $0.566 million interest-expense charge from writing off the remaining purchase-accounting fair-value adjustment when the company repaid $3.0 million of acquired junior subordinated debt. The debt payoff also reduced reported net borrowing balances.
- Compared with year-end, deposits grew by $5.4 million, including $10.0 million of brokered CDs; noninterest-bearing deposits declined $2.9 million. Loan growth was concentrated in commercial and investor CRE lending, partly offset by declines in several residential and owner-occupied categories.
Outlook, risks, and notable disclosures
The filing provides no specific earnings, growth, or margin guidance. Management said it expects adequate funding for current commitments and anticipates retaining a significant portion of maturing time deposits, but warns that lower retention could require FHLB borrowing, brokered deposits, or higher deposit rates. At March 31, the Bank reported $144.1 million of additional FHLB borrowing availability after outstanding letters of credit, plus a $20.0 million unsecured correspondent-bank facility.
Uninsured deposits were $190.1 million, or 27.9% of deposits; the filing says $57.2 million were secured by pledged collateral or FHLB letters of credit and another $42.5 million represented BV Financial deposits at the Bank. The portfolio is concentrated in real estate, and management identifies economic weakness, real-estate values, credit quality, deposit competition and funding costs, interest rates, liquidity, cybersecurity, and regulatory changes among risks. Management reported no material change in previously disclosed risk factors. Legal matters arising in the ordinary course are not expected to have a material adverse effect. Disclosure controls were deemed effective, with no materially affecting change in internal control reported for the quarter.
Key facts investors should verify
- Whether deposit pricing and mix continue to pressure net interest margin and earnings, and how much of the $10.0 million brokered-deposit balance is retained or replaced.
- Trends in investor CRE credit quality, nonaccrual loans, past-due balances, collateral values, and allowance adequacy; the filing reports $8.7 million of loans 90 or more days past due and $10.7 million of nonaccrual loans.
- The ongoing effect of the $0.566 million debt fair-value write-off and the cost and terms of remaining subordinated debt.
- Uninsured deposit concentration, available contingent funding, and the Bank’s regulatory capital ratios.