Business context and reporting period
BV Financial, Inc. is a Maryland bank holding company operating primarily through BayVanguard Bank, a community bank serving Baltimore-area and Eastern Shore communities. This Form 10-K covers the fiscal year ended December 31, 2023, with comparison to 2022; it does not provide standalone fourth-quarter results. The mutual-to-stock conversion and public offering closed July 31, 2023.
Financial performance and condition
- Profitability: Net income was $13.7 million, up 30.3% from $10.5 million; diluted EPS was $1.47 versus $1.32. Return on average assets was 1.54% (1.24% in 2022), while return on average equity declined to 9.93% from 11.49%.
- Interest income and margins: Interest income rose 30.2% to $43.4 million. Net interest income increased 14.4% to $34.2 million; net interest margin improved to 4.23% from 3.91%. The interest rate spread was nearly unchanged at 3.74% versus 3.75%. Interest expense rose to $9.2 million from $3.4 million, largely from higher deposit costs and FHLB borrowing during the year.
- Other income and costs: Noninterest income fell 33.7% to $3.8 million, mainly because 2022 included a $1.34 million bargain-purchase gain and higher life-insurance income. Noninterest expense decreased 2.9% to $19.4 million; lower merger and foreclosed-property costs were partly offset by higher compensation and professional fees. The 2023 effective tax rate was 26.4%.
- Assets and loans: Total assets increased 4.8% to $885.3 million. Net loans grew 5.6% to $696.2 million. Commercial real estate was $389.7 million, or 55.3% of gross loans; commercial-investor real estate alone was 40.8%. About half of commercial real estate loans were secured by properties outside Maryland.
- Credit quality: Nonperforming assets were $10.7 million, or 1.19% of assets, versus $7.9 million and 0.93% a year earlier. Nonaccrual loans rose to $10.6 million from $5.9 million, principally reflecting a $6.9 million commercial-investor real estate loan. The allowance for credit losses was $8.6 million, or 1.21% of loans. The filing gives differing coverage figures—82.94% in selected data and approximately 81.5% in risk discussion—and reports nonperforming-loan ratios of 1.46% and 1.50% in different passages.
- Deposits, liquidity and debt: Deposits declined 7.4% to $634.1 million; certificates of deposit increased to 27.4% of deposits from 21.4%. Uninsured deposits were $187.5 million, including $129.0 million uninsured and unsecured. Available liquidity was approximately $243 million, reported as 1.9 times uninsured, unsecured deposits. There were no FHLB advances outstanding at year-end; reported borrowings of $37.3 million were primarily subordinated debt.
- Cash flow and capital: Operating cash flow was $15.2 million; investing activities used $35.2 million; financing activities provided $25.1 million. Stockholders’ equity rose to $199.1 million, primarily reflecting $86.9 million of net offering proceeds and net income. The Bank reported a 24.00% Tier 1 risk-based capital ratio and 18.50% Tier 1 leverage ratio and was categorized as well capitalized.
Material changes versus 2022
- The July 2023 conversion offering sold 9,798,980 shares at $10 each; existing public shares were exchanged at a 1.5309-to-1 ratio. The company reported $97.99 million of gross issuance proceeds and $3.25 million of offering costs; the ESOP purchased shares with a company-financed loan.
- Loan growth was led by commercial-investor real estate, which increased $60.3 million. Residential real estate and commercial loans declined by a combined $34.5 million.
- Deposit outflows and repayment of FHLB advances were funded in part with offering proceeds and cash. Deposits decreased $50.5 million and the company ended the year without FHLB advances or brokered deposits.
- Allowance measurement changed with adoption of CECL on January 1, 2023. Adoption reduced retained earnings by $547,000 net of tax and transferred remaining acquisition credit marks into the allowance. The 2023 income statement recorded a $45,000 recovery of credit-loss provision versus $1.04 million of provision expense in 2022.
Outlook, management commentary, risks and unusual items
- Management intends to pursue prudent acquisitions, grow commercial real estate and residential mortgage lending, manage credit risk, and increase core deposits, particularly noninterest-bearing deposits. No quantified earnings, revenue or margin guidance is provided.
- Key risks include the concentration in commercial real estate, non-owner-occupied properties and local markets; the newer out-of-state investor real estate portfolio; credit deterioration and collateral values; deposit competition and uninsured funding; and interest-rate sensitivity. Management’s model estimates net interest income would increase 4.17% under an immediate 200-basis-point rate increase, but decrease 7.90% under a 200-basis-point decline. These are model estimates, not forecasts.
- Unrealized losses on available-for-sale securities were $2.7 million at year-end, attributed by management to interest-rate changes rather than credit concerns. Accumulated other comprehensive loss was $2.0 million.
- The Bank sold two foreclosed Baltimore properties, recognizing a $709,000 gain; foreclosed real estate ended at $170,000. Management identified the $6.9 million nonaccrual commercial-investor loan as the largest nonperforming loan and reported no write-down based on its appraisal and other factors.
- Subsequent to year-end, the company redeemed $3.0 million of acquired junior subordinated debt in February 2024. The $35.0 million subordinated notes mature in 2030 and may first be redeemed in December 2025.
- The auditor issued an unqualified opinion on the financial statements. The company did not include management’s internal-control effectiveness assessment or an auditor attestation, citing the transition period for newly public companies; management reported disclosure controls were effective.
Important facts for investors to verify
- Reconcile the filing’s differing nonperforming-loan ratios and allowance-coverage figures, and monitor the $6.9 million nonaccrual commercial-investor loan and other criticized credits.
- Review deposit retention, the mix and pricing of certificates of deposit, uninsured and unsecured balances, and the availability of contingent liquidity as offering-related cash is deployed.
- Assess concentration and performance in commercial-investor real estate, especially out-of-state loans, and the impact of maturities, refinancing conditions and property values.
- Track the continuing effect of deposit-cost increases on net interest margin and the assumptions and limitations of the company’s interest-rate-risk models.
- Confirm the use of conversion proceeds, ESOP loan repayment and share releases, and the timing and cost of the 2024 subordinated-debt redemption.
- Consider that 2022 results included a bargain-purchase gain and higher life-insurance death benefits, and that weighted-average shares changed following the conversion; reported annual comparisons may therefore include nonrecurring and share-count effects.