BV Financial, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. BV Financial is a Maryland-based bank holding company whose subsidiary, BayVanguard Bank, serves consumers and businesses, primarily in the Baltimore area and Maryland’s Eastern Shore. On July 31, 2023, the company completed its conversion from a mutual holding company to a stock holding company, issued shares at $10 each, and raised $86.9 million in net proceeds.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Interest income | $11.7 million | $8.6 million | $31.9 million | $24.0 million |
| Net interest income | $8.9 million | $7.8 million | $25.3 million | $21.5 million |
| Net income | $3.7 million | $2.6 million | $10.7 million | $7.8 million |
| Diluted EPS | $0.35 | $0.33 | $1.20 | $0.98 |
| Net interest margin | 4.10% | 4.00% | 4.21% | 3.73% |
- Q3 net income rose 41% year over year; nine-month net income rose about 37%. Higher loan yields and increased returns on cash and investments supported interest income, while deposit and FHLB funding costs rose substantially.
- Q3 net interest rate spread narrowed to 3.46% from 3.85%, despite the higher net interest margin. Nine-month spread increased to 3.77% from 3.58%.
- Noninterest income was $0.9 million in Q3 and $3.1 million year to date. Noninterest expense was $5.0 million and $14.3 million, respectively. The filing does not present a single revenue measure comparable to a nonbank company’s revenue.
- Total assets were $931.4 million, up 10.2% from December 31, 2022. Net loans were $698.9 million, up 6.0%; commercial investor real estate loans were $279.8 million, or 39.6% of loans.
- Deposits fell 5.6% to $646.5 million. Noninterest-bearing deposits declined to $143.2 million; certificates of deposit increased to $185.1 million. FHLB advances rose to $37.5 million from $12.0 million; subordinated debentures were $37.2 million gross.
- Cash and cash equivalents were $114.5 million, versus $68.7 million at year-end. Nine-month cash flows were $11.7 million provided by operating activities, $40.9 million used in investing, and $75.1 million provided by financing. Financing included the stock offering; investing included $40.1 million of net loan growth.
- Stockholders’ equity was $195.1 million, up from $97.8 million at year-end, primarily reflecting the offering and earnings. The Bank reported a 17.40% Tier 1 leverage ratio and 24.86% total risk-based capital ratio and was categorized as well capitalized.
Material changes and credit quality
- The company adopted CECL on January 1, 2023, recording a $547,000 after-tax reduction to retained earnings. The reported loan allowance rose to $8.2 million; management attributes part of the increase to transferring acquisition credit marks under the new standard. Allowance was 1.15% of loans, compared with 0.50% a year earlier.
- Nonaccrual loans declined to $3.8 million, or 0.54% of loans, from $5.9 million, or 0.88%, at December 31, 2022. Nonperforming assets totaled $4.4 million, including $555,000 of foreclosed real estate, versus $7.9 million at year-end.
- Loans to borrowers experiencing financial difficulty that were modified during the first nine months totaled $1.6 million; modifications were term extensions. One modified nonaccrual loan had payment defaults in the prior 12 months.
- Available-for-sale securities had $3.5 million of gross unrealized losses at quarter-end; held-to-maturity securities had $1.3 million. Management attributed the unrealized losses to interest-rate changes rather than credit concerns and reported no credit losses on AFS securities.
Outlook, liquidity, and risks
- The filing provides no numerical earnings or growth guidance. Management said it expects sufficient funds to meet current commitments and anticipates retaining a significant portion of maturing time deposits, but notes retention is uncertain.
- Management cited customers moving funds to higher-yielding investments and said it is raising deposit rates in an effort to retain and grow balances. The company had no brokered deposits at September 30, 2023, compared with $10.0 million at June 30.
- Reported uninsured deposits were $200.2 million, or 28.91% of total deposits. The Bank had $47.5 million of certificates of deposit of $250,000 or more. Two local-government relationships represented 3.6% and 2.9% of deposits.
- The company reported $178.5 million available under its FHLB line, with $37.5 million of advances outstanding and $40.0 million of letters of credit against the line; it stated additional FHLB borrowing availability was $100.9 million. It also has a $20.0 million short-term unsecured correspondent-bank facility and access to the Federal Reserve’s Bank Term Funding Program.
- Key stated risks include deposit outflows and funding costs, interest-rate and market movements, real estate values and regional economic conditions, loan losses and allowance estimates, competition, cybersecurity and technology, and regulatory changes. Management said routine legal actions are not expected to materially affect results. It reported effective disclosure controls and no material change in internal control over financial reporting.
- The cover page marks “No” for having filed all required reports during the preceding 12 months. The filing text does not explain that response; investors should verify its context.
Most important facts for investors to verify
- Whether deposit trends and the shift toward higher-cost certificates continue, and how those changes affect funding costs and net interest margin.
- Uninsured deposit composition, including the extent of collateralization, and the availability and terms of contingent borrowing capacity.
- Credit performance in the commercial investor real estate portfolio and whether the CECL allowance remains appropriate as loan balances and economic conditions change.
- The near-term maturity and refinancing implications of the $37.5 million of FHLB advances reported with a 2023 maturity.
- The effect of the July conversion and increased share count on per-share earnings, capital deployment, and future returns to shareholders.
- The explanation for the cover-page “No” response regarding timely filing of required reports.