FVCBankcorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023 unless otherwise noted. FVCBankcorp is a Virginia bank holding company operating through FVCbank, serving the Washington, D.C. and Baltimore metropolitan areas. Figures below are in U.S. dollars; financial statement amounts are generally in millions.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Net interest income | $12.8 million | Down 9% from $14.0 million in Q1 2023 |
| Net interest margin | 2.47% (tax-equivalent) | 2.60% in Q1 2023 |
| Net income / diluted EPS | $1.34 million / $0.07 | $0.62 million / $0.03 in Q1 2023 |
| Noninterest income | $0.40 million | Compared with a $4.63 million loss in Q1 2023 |
| Noninterest expense | $8.63 million | Down 4% from $9.01 million |
| Total assets | $2.18 billion | Down $7.9 million from year-end |
| Loans, net | $1.83 billion | Up $24.1 million from year-end |
| Total deposits | $1.86 billion | Up $12.0 million from year-end |
| Cash and cash equivalents | $80.5 million | Includes $6.9 million cash and $73.6 million interest-bearing deposits |
| Stockholders’ equity | $220.7 million | Up from $217.1 million; equity/assets was 10.1% |
| Bank regulatory capital | Total risk-based capital 14.05%; CET1 13.01% | Bank reported as well capitalized |
Cash flow, funding and credit
- Operating cash flow was $7.2 million; investing activities provided $7.4 million, including $47.8 million from BOLI surrender and $23.8 million of net loan growth. Financing activities used $15.7 million. Cash and cash equivalents decreased $1.1 million during the quarter.
- Borrowed funds were $57.0 million on the consolidated balance sheet, down from $85.0 million at year-end; this included $50.0 million of FHLB advances and $7.0 million borrowed under the Bank Term Funding Program. Subordinated notes were $19.6 million.
- Available liquidity was reported as $247.3 million, or 11% of assets. Management listed $907.4 million of secondary borrowing capacity available, while $137.0 million was in use. The BTFP program ended in March 2024.
- Estimated uninsured deposits were $566.5 million, or 30.5% of deposits. Wholesale deposits were $259.8 million.
- The loan allowance was $18.9 million, or 1.02% of loans. Nonperforming loans were $3.0 million, or 0.14% of assets; special-mention loans were $5.5 million and substandard loans were $22.4 million.
- Commercial real estate and construction loans totaled $1.245 billion, approximately 67% of loans. The regulatory CRE concentration was 394% of risk-based capital. Office loans were $121.3 million and retail-center loans were $266.1 million.
Material changes versus comparable periods
- Interest income increased 6% year over year, but interest expense rose 24%, primarily due to higher deposit rates. Deposit interest expense increased $3.8 million; lower short-term borrowing expense partly offset this increase. Net interest margin declined 13 basis points.
- Net income increased year over year, but the comparison is significantly affected by the $4.6 million securities-sale loss recorded in Q1 2023, which did not recur. Management’s non-GAAP commercial bank operating earnings were $3.7 million versus $4.2 million, and diluted operating EPS was $0.20 versus $0.23.
- In Q1 2024, the company surrendered BOLI policies with approximately $48.0 million of cash surrender value. The surrender generated cash but also $2.4 million of tax expense and penalties, including $1.6 million of additional tax expense and $722,000 of penalties.
- Loans grew 1% from year-end. Commercial and industrial loans rose to $246.6 million from $219.9 million; commercial construction loans increased to $155.5 million from $148.0 million.
- Noninterest expense decreased 4%, mainly due to lower salaries and occupancy costs, partly offset by higher software and FDIC insurance expenses.
- Available-for-sale securities had $36.1 million of gross unrealized losses at quarter-end, up from $34.1 million at year-end. Management attributed these losses primarily to higher interest rates, reported no credit-loss allowance, and said it did not intend, nor expect to be required, to sell before recovery.
Outlook, commentary and risks
- The filing provides no specific earnings, margin, loan-growth or deposit-growth guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management cited rising funding costs and deposit competition as pressures on net interest income. It also noted that higher rates may affect deposit costs, loan demand, collateral values and securities values.
- Key disclosed risks include economic weakness, inflation and interest-rate changes; real-estate market deterioration and CRE concentration; credit losses and reserve-estimation uncertainty; deposit outflows and access to wholesale funding; securities market and liquidity risk; regulatory changes; and operational, fraud and cybersecurity risks.
- Management said liquidity was sufficient and that it stress-tests liquidity, but cautioned that market disruption, deposit outflows or operational issues could impair access to funding. No material legal proceedings or material changes to previously disclosed risk factors were reported.
- The Board renewed a share repurchase authorization for up to 1.3 million shares through March 31, 2025; no shares were repurchased in Q1.
Important facts for investors to verify
- Reconcile the filing’s credit-modification disclosures: the loan note says there were no financial-difficulty modifications in Q1, while MD&A states there were $1.3 million of such modifications.
- Review the sustainability of net interest income and deposit pricing, including the decline in margin and the composition and cost of wholesale funding.
- Assess the CRE portfolio’s size and composition, particularly the 394% regulatory CRE concentration and office and retail exposures, alongside current delinquencies, criticized loans and reserve coverage.
- Evaluate liquidity assumptions: uninsured deposits were 30.5% of deposits, and the BTFP facility ended in March 2024. Confirm the availability and terms of remaining contingent funding sources.
- Distinguish reported earnings from recurring performance: Q1 included BOLI surrender-related tax and penalties, while the prior-year comparison included a securities-sale loss. The company’s adjusted operating earnings are non-GAAP measures.
- Confirm the impact of BOLI surrender on future tax expense and noninterest income, and monitor the substantial unrealized losses in the securities portfolio.