FVCBankcorp, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; comparisons are with fiscal 2021. This is an annual report, not a standalone fourth-quarter earnings report. FVCBankcorp operates through FVCbank, serving commercial and retail customers primarily in the Washington, D.C. and Baltimore metropolitan areas.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $65.2 million | $57.9 million |
| Net interest margin | 3.19% | 3.09% |
| Net income | $25.0 million | $21.9 million |
| Diluted earnings per share | $1.35 | $1.20 |
| Total assets, year-end | $2.34 billion | $2.20 billion |
| Loans, net of deferred fees, year-end | $1.84 billion | $1.50 billion |
| Deposits, year-end | $1.83 billion | $1.88 billion |
| Other borrowed funds, year-end | $284.6 million | $44.5 million |
- Revenue and earnings: Net interest income plus noninterest income was approximately $68.1 million, versus $62.2 million in 2021. Return on average assets was 1.18% (1.11% in 2021); return on average equity was 12.34% (10.92%). The efficiency ratio improved to 50.62% from 55.49%.
- Credit costs and asset quality: The company recorded a $2.6 million loan-loss provision, compared with a $0.5 million provision reversal in 2021. Allowance for loan losses was $16.0 million, or 0.87% of loans, versus $13.8 million, or 0.92%. Net charge-offs were $418,000. Nonperforming loans were $4.5 million, or 0.24% of loans; nonperforming assets were 0.19% of assets.
- Cash flow: Operating activities provided $22.4 million; investing activities used $225.8 million; financing activities provided $186.1 million. Cash and cash equivalents decreased $17.4 million to $7.3 million. Separately, liquid assets, including available-for-sale securities, totaled $359.6 million, or 15% of assets, down from $598.7 million, or 27%.
- Capital and equity: Shareholders’ equity was $202.4 million, down from $209.8 million, chiefly reflecting a $34.5 million after-tax decline in other comprehensive income, primarily from lower available-for-sale securities values. The Bank’s year-end capital ratios included 12.45% CET1 and 13.28% total risk-based capital; it was classified as well capitalized.
Material changes versus 2021
- Loans grew 22%, or $336.6 million; excluding declining PPP loans, growth was $362.8 million. Total assets rose 6%.
- Deposits fell 3%. Brokered deposits increased to $248.0 million from $35.0 million, while FHLB advances rose to $235.0 million from $25.0 million; the Bank also had $30.0 million of federal funds purchased.
- Net interest income increased 13%, supported by loan growth and higher rates; interest expense also rose, by $5.0 million. The Federal Reserve raised its target rate seven times during 2022.
- Noninterest income fell 34% to $2.8 million, primarily reflecting a $659,000 loss related to the ACM investment versus $1.5 million of ACM income in 2021. Noninterest expense was essentially flat at $34.5 million; excluding merger costs, it increased 4%.
- GAAP net income included $125,000 of merger-related costs in 2022. 2021 included $1.4 million of merger costs, $380,000 of accelerated debt issuance costs, and a $236,000 gain on sale of other real estate. The proposed Blue Ridge merger was terminated in January 2022.
Outlook, risks, and unusual items
- The filing gives no specific earnings or growth guidance. Management described continued organic growth as a strategy, while emphasizing prudent growth, asset quality, and customer service.
- In February 2023, the Bank sold $40.3 million of available-for-sale securities and used proceeds to reduce higher-cost short-term FHLB advances and support lending. The after-tax loss of $3.6 million was expected to be recorded in first-quarter 2023; management said it was already reflected in accumulated other comprehensive loss and expected the repositioning to improve future net interest income and margin. Management estimated a 9-basis-point margin benefit. The Bank also entered into five-year pay-fixed/receive-floating swaps covering $150 million of wholesale funding, at a weighted average rate of 3.50%.
- Key exposures include real estate and geographic concentration: real-estate-secured loans were 86.3% of total loans, and regulatory-defined commercial real estate loans were 405% of total risk-based capital. Commercial construction, development, and land loans were 57% of capital.
- Government contractors represented about 40.3% of commercial and industrial loans; commitments to those borrowers totaled $305.1 million. The company also disclosed $727.3 million of estimated uninsured deposits and one customer relationship representing 9% of deposits.
- Other risks cited include rising rates and inflation, deposit competition and funding costs, borrower credit deterioration, reliance on brokered deposits and third-party technology providers, cybersecurity, and the LIBOR-to-SOFR transition. The company adopted CECL on January 1, 2023; the adoption adjustment was described as not significant.
- The company had no material legal proceedings and reported no cash dividend plan. A five-for-four stock split was approved in December 2022 and paid in January 2023; per-share figures are adjusted for the split.
Important facts for investors to verify
- Track deposit composition, brokered funding, uninsured deposits, and the concentration of large depositor relationships as rates and banking conditions change.
- Review subsequent-period liquidity, borrowing levels, and the realized results of the February 2023 securities sale and balance-sheet repositioning.
- Monitor commercial real estate concentrations, loan seasoning, criticized loans, delinquencies, and the performance of government-contractor borrowers.
- Assess whether the ACM investment’s recent losses reverse and whether the expected strategic benefits materialize.
- Confirm the effects of CECL adoption and subsequent credit-loss provisions. The 2022 financial statements received an unqualified audit opinion; the auditor did not attest to internal control effectiveness.