FVCBankcorp, Inc. — 2020 Form 10-K
Business context and reporting period
FVCBankcorp is a Virginia bank holding company operating through FVCbank, a community commercial bank serving businesses, professionals, nonprofits and individuals in the Washington, D.C. and Baltimore metropolitan areas. This filing reports the fiscal year ended December 31, 2020, with balance-sheet comparisons to December 31, 2019.
Financial performance and condition
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Net interest income | $52.6 million | $48.1 million | Up 9.5% |
| Net interest margin | 3.28% | 3.48% | Down 20 basis points |
| Net income | $15.5 million | $15.8 million | Diluted EPS: $1.10 vs. $1.07 |
| Provision for loan losses | $5.0 million | $1.7 million | Higher amid pandemic-related credit uncertainty |
| Total assets | $1.82 billion | $1.54 billion | Up 18.5% |
| Total loans, gross | $1.47 billion | $1.27 billion | Up 15.4%; includes $155.8 million of PPP loans at year-end |
| Total deposits | $1.53 billion | $1.29 billion | Up 19.2% |
| Shareholders’ equity | $189.5 million | $179.1 million | Year-end equity-to-assets ratio: 10.4% vs. 11.7% |
| Other borrowed funds | $69.1 million | $49.5 million | Includes $25 million FHLB advances and $44.1 million subordinated notes, net |
- Lower funding costs supported net interest income: the cost of interest-bearing deposits declined to 1.18% from 1.77%. Lower asset yields, PPP lending and excess liquidity pressured margin.
- Noninterest income was $2.9 million, up from $2.5 million. Noninterest expense was $30.8 million, up from $28.9 million; it included a $676,000 impairment related to two branch closures.
- Operating cash flow was $20.4 million, compared with $19.4 million in 2019. Investing activities used $273.9 million, principally reflecting loan growth and increased deposits at other financial institutions; financing activities provided $259.4 million, including deposit growth and subordinated-note proceeds.
- Liquid assets were $267.2 million, or 14.7% of assets, at year-end. Additional stated capacity included approximately $124.1 million at the FHLB, $124.3 million at the Federal Reserve and $269 million in unsecured federal-funds lines; availability is subject to applicable conditions.
- The Bank reported an 11.65% community bank leverage ratio at year-end and said it remained well capitalized. Tangible book value per share was $13.41, versus $12.26.
Material changes versus 2019
- Assets, loans and deposits grew substantially, supported in part by PPP lending and new and existing customer relationships.
- Allowance for loan losses rose to $15.0 million from $10.2 million; the allowance-to-loans ratio increased to 1.02% from 0.81%. Net charge-offs were 0.02% of average loans, compared with 0.05%.
- Nonperforming assets declined to $9.5 million, or 0.52% of assets, from $14.6 million, or 0.95%. Nonperforming loans were 0.38% of loans at year-end, compared with 0.84%.
- Return on average assets fell to 0.91% from 1.09%, and return on average equity fell to 8.48% from 9.32%. Management’s non-GAAP operating earnings, excluding specified branch-closure and merger costs, were $16.0 million versus $15.9 million.
- The company issued $20 million of 4.875% fixed-to-floating subordinated notes due 2030. The new notes qualify as Tier 2 capital; management cited general corporate purposes, bank capital support and possible repayment of some existing subordinated debt callable in June 2021.
Outlook, commentary and risks
- The filing gives no specific earnings, growth or margin guidance. Management said it remained encouraged by local economic resilience and the company’s growth prospects, while emphasizing that pandemic effects and credit outcomes remained uncertain.
- During 2020, the Bank modified 277 loans totaling $360.2 million for payment deferrals. As of March 1, 2021, $10.1 million across five loans remained subject to accommodation. Management warned that delinquencies, problem assets and charge-offs could rise as deferrals expire and stimulus effects diminish.
- Credit concentration is a key risk: commercial real estate, including construction, represented 68.8% of loans. Regulatory-purpose commercial real estate loans equaled 372% of risk-based capital; construction, development and land loans equaled 99%. Management reported heightened monitoring and underwriting controls.
- PPP loans are SBA-guaranteed, but the company identified possible losses or reputational costs if loans are not forgiven or the guarantee is not honored. PPP loans totaled $155.8 million at year-end; the filing also reports $170.3 million funded net of deferred fees across loans originated or approved, a different measure.
- Other material risks include interest-rate sensitivity, local real estate and economic conditions, deposit retention and funding costs, government-contractor exposure, cyber and third-party technology risks, and the transition away from LIBOR. The company reported no material legal proceedings and no goodwill impairment in 2020.
- The company suspended share repurchases in March 2020 after repurchasing 487,531 shares for $7.3 million during the first quarter. In January 2021 it authorized a new program for up to 1,080,860 shares, subject to market conditions and board discretion. It reported no cash dividends and no current plan to pay them.
Most important facts for investors to verify
- Track performance and repayment of pandemic-affected loans, particularly the hotel loan that remained under accommodation, and changes in nonperforming loans, charge-offs and the allowance.
- Assess the scale and quality of commercial real estate and construction exposures, including concentration relative to capital and collateral values.
- Monitor PPP forgiveness, deferred-fee recognition and remaining PPP balances, as well as deposit growth, customer concentration and reliance on wholesale funding.
- Review the subordinated notes’ terms, the June 2021 call decision on existing debt, and the impact of funding costs and interest-rate changes on margin.
- Consider the distinction between GAAP net income of $15.5 million and management’s non-GAAP operating earnings of $16.0 million, including the $676,000 branch-closure impairment and the assumptions behind adjustments.
The independent auditor issued an unqualified opinion on the consolidated financial statements. Management reported effective internal control over financial reporting; the auditor did not provide an ICFR attestation.