FVCBankcorp, Inc. — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparisons are generally with FY 2020. FVCBankcorp is a Virginia bank holding company operating through FVCbank, serving businesses and consumers primarily in the Washington, D.C. and Baltimore metropolitan areas. Its main lending focus is commercial real estate, commercial lending, and government contractors.
Financial performance and condition
| Metric | FY 2021 / year-end | FY 2020 / comparison |
|---|---|---|
| Net income | $21.9 million; diluted EPS $1.50 | $15.5 million; diluted EPS $1.10 |
| Net interest income | $57.9 million | $52.6 million |
| Net interest margin, tax-equivalent | 3.09% | 3.28% |
| Return on average assets / equity | 1.11% / 10.92% | 0.91% / 8.48% |
| Total assets | $2.20 billion | $1.82 billion |
| Loans, gross / net of allowance | $1.51 billion / $1.49 billion | $1.47 billion / $1.45 billion |
| Deposits | $1.88 billion | $1.53 billion |
| Other borrowed funds | $44.5 million | $69.1 million |
| Shareholders’ equity | $209.8 million; book value per share $15.28; tangible book value per share $14.70 | $189.5 million; $14.03; $13.41 |
- Net interest income rose 10.1%, mainly because the cost of interest-bearing deposits fell. Lower asset yields and excess liquidity contributed to margin compression.
- Noninterest income increased to $4.3 million from $2.9 million, including $1.5 million of income from the ACM investment. Noninterest expense rose 12.0% to $34.5 million, including higher staffing costs and merger-related expense.
- The company reported a $0.5 million reversal of loan-loss provision, versus $5.0 million of provision expense in 2020. The allowance was $13.8 million, or 0.92% of loans net of deferred fees; net charge-offs were 0.04% of average loans.
- Operating cash flow was $19.4 million, compared with $14.9 million in 2020. Investing activities used $344.3 million, including $245.7 million of securities purchases and the ACM investment; financing activities provided $328.7 million, largely from deposit growth.
- Liquid assets were $598.7 million, or 27.2% of total assets. The Bank reported a 10.53% community bank leverage ratio and was considered well capitalized.
Material changes and notable items
- Total assets grew 20.9% and deposits grew 22.9%. Gross loans increased only 2.6%; excluding PPP loans, which declined as loans were forgiven, net loan growth was $162.6 million.
- Available-for-sale securities increased to $357.8 million from $126.2 million. The portfolio had $4.3 million of gross unrealized losses at year-end, primarily attributed by management to interest-rate changes; accumulated other comprehensive income declined by $3.9 million during 2021.
- The Bank invested $20.4 million for a 28.7% interest in Atlantic Coast Mortgage (ACM), subject to an earnback option of up to 3.7%. It also began providing ACM a warehouse lending facility.
- FVCBankcorp redeemed its 2016 subordinated debt during 2021 and recorded $380,000 of accelerated debt issuance costs. It had $19.5 million of subordinated notes outstanding at year-end, including notes due in 2030.
- Nonperforming assets fell to $3.5 million, or 0.16% of assets, from $9.5 million, or 0.52%. The company sold its $3.9 million OREO property and recorded a $236,000 gain.
Outlook, risks and contingencies
- The filing provides no numerical earnings or growth guidance. Management described improving local economic conditions in 2021 and expressed encouragement about regional resilience, while identifying continued uncertainty from the pandemic, remote work, inflation, wage growth, and policy and geopolitical conditions.
- A proposed merger with Blue Ridge Bankshares was mutually terminated on January 20, 2022. FY 2021 included $1.445 million of related expenses. Management’s non-GAAP operating earnings were $23.2 million, versus GAAP net income of $21.9 million; these measures exclude specified items and are not GAAP results.
- Credit concentration is a major risk: commercial real estate, including construction, represented approximately 72.5% of loans. Regulatory-defined commercial real estate loans equaled 396% of risk-based capital. Government contractors represented 33.1% of commercial and industrial loans, with $238.1 million of commitments to that sector.
- At year-end, $901.1 million of deposits were estimated to be uninsured; one customer relationship represented 17% of deposits. The filing identifies deposit concentration, brokered funding availability, and potential deposit outflows as liquidity risks.
- The company was slightly asset-sensitive in its interest-rate modeling: a 100-basis-point rate increase was estimated to raise one-year net interest income by 2.0%; a 400-basis-point increase by 8.6%. These are model estimates, not forecasts, and depend on assumptions about customer behavior.
- Remaining COVID-related payment deferrals were $10.6 million across two loans. Other key risks include real estate and local economic weakness, less-seasoned loans, regulatory capital requirements, cybersecurity and third-party service providers, and the transition from LIBOR to SOFR.
- CECL implementation was planned for January 1, 2023. The company reported no material legal proceedings. The auditor issued an unqualified opinion on the financial statements; the auditor did not attest to internal control effectiveness. Management concluded disclosure controls and internal control over financial reporting were effective.
Investor verification priorities
- Reconcile loan growth, PPP forgiveness, and the ACM warehouse facility; review ACM’s contribution to earnings and the terms of the earnback option.
- Assess commercial real estate and government-contractor concentrations, criticized and nonperforming loans, remaining deferrals, and the adequacy of the allowance.
- Examine uninsured and concentrated deposits, funding alternatives, and the maturity and repricing profile of deposits and borrowings.
- Review the sensitivity of net interest income and securities values to higher rates, including the unrealized securities losses and related capital effects.
- Distinguish GAAP results from management’s adjusted operating earnings and verify the costs and strategic implications of the terminated merger.