FVCBankcorp, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report. FVCBankcorp is a Virginia bank holding company operating through FVCbank, serving commercial and retail customers primarily in the Washington, D.C. and Baltimore metropolitan areas.
Financial performance and condition
Amounts are in U.S. dollars; financial statement figures are rounded to millions unless stated otherwise.
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue (net interest income plus noninterest income) | $41.5 million | $35.1 million |
| Net interest income | $39.8 million | $32.1 million |
| Provision for loan losses | $1.9 million | $1.2 million |
| Noninterest income | $1.7 million | $3.0 million |
| Noninterest expense | $26.4 million | $19.3 million |
| Net income | $10.9 million | $7.7 million |
| Diluted EPS | $0.85 | $0.67 |
| Net interest margin (tax-equivalent) | 3.51% | 3.43% |
| Efficiency ratio | 63.07% | 57.16% |
| Return on average assets / equity | 0.94% / 9.29% | 0.80% / 8.63% |
- Growth: Year-end assets rose 28.3% to $1.352 billion; loans net of allowance were $1.128 billion, and deposits rose 25.2% to $1.162 billion. Reported net loans before allowance were $1.137 billion. Colombo acquisition and organic growth both contributed.
- Credit quality: Allowance for loan losses was $9.2 million, or 0.81% of gross loans, versus $7.7 million and 0.87% a year earlier. Net charge-offs were 0.05% of average loans. Nonperforming assets were $7.4 million, or 0.57% of assets, versus $4.7 million and 0.44% in 2017; nonperforming loans were 0.34% of loans.
- Balance sheet and capital: Shareholders’ equity was $158.3 million, versus $98.3 million; tangible book value per share was $10.93. Bank regulatory capital ratios were 14.02% total risk-based, 13.27% Tier 1/CET1, and 12.41% leverage; the Bank was classified as well capitalized.
- Debt and funding: Borrowings were $24.4 million, consisting of subordinated notes bearing 6.00% through June 2021 and then resetting to a floating rate; no FHLB advances were outstanding at year-end. Deposits included $84.4 million in wholesale deposits, and municipal deposits represented 10.8% of total deposits.
- Liquidity and cash flow: Management reported $167.0 million of liquid assets (12.4% of assets), additional FHLB borrowing capacity of approximately $126.8 million, Federal Reserve capacity of $62.6 million, and $169.0 million of unused unsecured federal funds lines. Operating cash flow was $13.3 million; investing cash flow was negative $114.3 million and financing cash flow positive $102.9 million. Cash and cash equivalents ended at $9.4 million.
Material changes and unusual items
- Colombo Bank was acquired on October 12, 2018, adding five locations. Consideration was $32.9 million, including $14.6 million in stock and $18.3 million in cash. The acquisition added approximately $131.0 million of loans and $138.3 million of deposits at year-end/closing, and generated $6.5 million of goodwill and a $2.0 million core deposit intangible.
- 2018 included $3.3 million of merger and acquisition expense, or approximately $2.6 million after tax. Excluding these expenses, management reported non-GAAP net income of $13.4 million and diluted EPS of $1.05. These adjusted figures are not GAAP results.
- 2017 included a $2.0 million tax expense from remeasurement of deferred tax assets following the Tax Cuts and Jobs Act. The 2018 effective tax rate was 17.1%, versus 47.1% in 2017, reflecting that prior-year item and 2018 discrete tax benefits.
- Noninterest income declined chiefly because 2017 included a $1.1 million gain on foreclosure of real estate and a BOLI policy claim; 2018 also recorded $462,000 of securities sale losses. Noninterest expense rose partly from merger costs and staffing investments. The efficiency ratio consequently worsened.
- Loan growth increased exposure to real estate: commercial real estate and construction/land loans together were 73.5% of loans. Regulatory-defined commercial real estate loans were 353.0% of risk-based capital. Approximately 70.1% of loans had been originated in the prior three years, so the portfolio had limited seasoning.
Outlook, risks, and contingencies
- The filing gives no specific numerical earnings or growth guidance. Management describes a strategy of organic growth, selective branching and potential acquisitions, with emphasis on prudent growth, profitability, service, and asset quality.
- Management characterized interest-rate sensitivity as modestly asset-sensitive. Its model estimated one-year net interest income increases of 1.0% for a 100-basis-point rate rise and 2.7% for a 400-basis-point rise; modeled outcomes depend on assumptions, including deposit behavior, and are not forecasts.
- Key risks include concentrated commercial real estate lending, rising nonperforming loans, interest-rate and deposit-cost pressure, competition for deposits, municipal and brokered funding reliance, and exposure to government contractors and federal budget disruptions. Government contractors represented 33.0% of commercial and industrial loans; commitments to them totaled $127.3 million.
- Other material risks include acquisition integration and goodwill impairment, liquidity and deposit outflows, cybersecurity and third-party service-provider failures, regulatory and compliance costs, and future credit losses. Management had no specific reserve for impairment of acquired PCI loans at year-end.
- The company expected adoption of lease accounting in 2019 to recognize approximately $12.5 million of right-of-use assets and $12.8 million of lease liabilities. It was evaluating the expected credit loss (CECL) standard, effective for the company beginning in 2020; the impact was not yet determinable and could increase the allowance.
- The company paid no cash dividends and stated it had no current plans to do so. Management reported no material legal proceedings. The independent auditor gave 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.
Important facts for investors to verify
- How Colombo integration, acquired-loan performance, and anticipated cost or revenue benefits developed after year-end.
- Whether problem loans and nonperforming assets continued to rise, especially in commercial and industrial lending and acquired loans, and whether the allowance remained adequate.
- Current commercial real estate concentration, loan seasoning, government-contractor exposure, and related regulatory capital requirements.
- Deposit composition and pricing, municipal and wholesale funding concentrations, deposit maturities, and actual availability of contingent borrowing lines.
- Whether higher funding costs pressured net interest margin and whether modeled interest-rate sensitivity assumptions matched realized results.
- The eventual CECL allowance impact, lease-accounting transition, and any impairment assessment for Colombo goodwill.
- Reconciliation of non-GAAP adjusted earnings to GAAP results and whether recurring operating costs—notably staffing and acquisition-related expenses—were consistent with management’s growth plans.