FVCBankcorp, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. FVCBankcorp is a Virginia bank holding company operating through FVCbank in the Washington, D.C. and Baltimore markets. Amounts below are in U.S. dollars; financial statement amounts are generally in millions.
Financial performance and position
| Metric | Q3 2023 / September 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Net income | $4.0 million; diluted EPS $0.22 | Q3 2022: $7.0 million; diluted EPS $0.38 |
| Nine-month net income | $8.9 million; diluted EPS $0.49 | Nine months 2022: $20.1 million; diluted EPS $1.09 |
| Net interest income | Q3: $13.3 million; nine months: $41.7 million | Q3 2022: $17.5 million; nine months 2022: $49.4 million |
| Net interest margin, tax-equivalent | Q3: 2.39%; nine months: 2.53% | Q3 2022: 3.38%; nine months 2022: 3.27% |
| Noninterest income | Q3: $0.2 million; nine months: loss of $3.5 million | Q3 2022: $0.6 million; nine months 2022: $2.8 million income |
| Noninterest expense | Q3: $9.0 million; nine months: $27.3 million | Q3 2022: $8.6 million; nine months 2022: $25.3 million |
| Total assets | $2.31 billion | $2.34 billion at December 31, 2022 |
| Gross loans | $1.85 billion | $1.84 billion at December 31, 2022 |
| Total deposits | $2.00 billion | $1.83 billion at December 31, 2022 |
| Borrowings | $50 million FHLB advances; no federal funds purchased; $19.6 million subordinated notes | $235 million FHLB advances; $30 million federal funds purchased; $19.6 million subordinated notes at December 31, 2022 |
| Stockholders’ equity | $211.2 million; 9.2% of assets | $202.4 million; 8.6% of assets at December 31, 2022 |
| Operating cash flow | Nine months: $11.7 million provided | Nine months 2022: $13.9 million provided |
Material changes and notable items
- Earnings and funding pressure: Q3 net income declined 43% year over year. Management attributed the lower net interest income and margin primarily to rapidly rising deposit and other funding costs. Q3 interest expense rose to $14.1 million from $3.6 million a year earlier; the average cost of interest-bearing deposits increased to 3.40% from 0.88%.
- Balance-sheet repositioning: In February 2023, the company sold $40.3 million of available-for-sale securities, recognizing a $4.6 million pretax loss, and used proceeds to reduce higher-cost short-term FHLB funding and support lending. The sale materially reduced reported nine-month earnings.
- Investment in ACM: The minority membership interest generated a $1.4 million loss for the first nine months of 2023, versus $0.8 million of income in the comparable 2022 period.
- Credit allowance and asset quality: The allowance for loan losses was $18.8 million, or 1.02% of gross loans (1.06% including the unfunded-commitment reserve). Nonperforming loans were $1.5 million, or 0.07% of assets, versus $4.5 million and 0.19% at year-end 2022. The Q3 credit-loss provision was a $0.7 million recovery; the nine-month provision was $0.1 million.
- CECL adoption: Adoption on January 1, 2023 increased loan and unfunded-commitment reserves by $3.7 million and reduced retained earnings by $2.8 million net of tax.
- Liquidity and deposits: Estimated uninsured deposits, excluding collateralized deposits, were $635.1 million, or 31.8% of deposits, down from 39.7% at year-end 2022. Liquid assets were $313.1 million, or 14% of assets; management reported liquidity at 134% of estimated uninsured deposits. Available borrowing capacity included approximately $481.6 million at the FHLB, $135.9 million at the Federal Reserve and $185 million in unused unsecured federal funds lines.
- Capital and securities: The Bank reported a 13.93% total risk-based capital ratio and a 10.62% leverage ratio, above stated well-capitalized thresholds. Available-for-sale securities had $55.9 million of gross unrealized losses at September 30, which management attributed primarily to interest rates rather than credit deterioration. AOCI was negative $34.8 million.
Outlook, risks and contingencies
The filing provides no specific earnings, margin, loan-growth or deposit-growth guidance. Management said it expects to maintain sufficient liquidity and continue disciplined underwriting, while noting that interim results are not necessarily indicative of full-year results. It identified interest rates, deposit pricing and outflows, economic conditions, real estate values, credit losses, securities values and liquidity access as material risks.
Commercial real estate was approximately 59% of gross loans; the regulatory CRE concentration, including nonowner-occupied real estate and construction loans, was 390% of total risk-based capital. Management reported no delinquencies or classified loans in the CRE asset classes shown in its portfolio analysis, but warned that weaker economic conditions or real estate values could increase losses. Off-balance-sheet exposures included $217.4 million of unused loan and line commitments and $6.2 million of letters of credit. Five loans totaling $8.1 million were modified for borrowers experiencing financial difficulty; the filing says they were performing under modified terms.
The company reported no material legal proceedings and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting. The company had completed its transition from LIBOR-indexed financial instruments as of September 30, 2023.
Most important facts for investors to verify
- Whether deposit repricing, the share of time and wholesale funding, and any further uninsured-deposit changes continue to pressure net interest margin and earnings.
- Whether the reported liquidity sources remain available under stress and how deposit concentration and collateral requirements affect usable liquidity.
- Whether the $55.9 million unrealized securities loss and negative AOCI change with interest rates, and whether any securities sales or impairment become necessary.
- How CRE concentrations, especially office and retail exposures, perform as loans mature or collateral values change; monitor criticized, delinquent and nonaccrual loans and reserve coverage.
- Whether ACM’s operating results improve and whether its losses or related warehouse lending exposure increase.
- Reconcile the filing’s deposit-growth narrative: balance-sheet figures show deposits rising from $1.830 billion to $1.996 billion, an increase of approximately $165.8 million; one MD&A passage states a different increase.