FVCBankcorp, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018; unaudited consolidated results. The company is a Virginia bank holding company operating through FVCbank in the Washington, D.C. metropolitan area. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net interest income | $9.9 | $8.2 | $28.0 | $23.7 |
| Provision for loan losses | $0.35 | $0.25 | $0.99 | $0.77 |
| Noninterest income | $0.75 | $0.35 | $1.50 | $1.50 |
| Noninterest expense | $5.95 | $4.86 | $17.03 | $14.42 |
| Net income | $3.39 | $2.24 | $9.46 | $6.68 |
| Diluted EPS | $0.27 | $0.19 | $0.78 | $0.60 |
| Tax-equivalent net interest margin | 3.54% | 3.46% | 3.48% | 3.44% |
- Q3 return on average assets and equity were 1.18% and 12.23%; nine-month returns were 1.15% and 12.09%.
- Management’s non-GAAP earnings excluding after-tax Colombo merger expenses were $3.64 million, or $0.29 diluted EPS, for Q3 and $10.02 million, or $0.82 diluted EPS, for nine months. These are management-adjusted measures, not GAAP results.
- For the first nine months, operating cash flow was $9.0 million, investing cash flow was negative $121.2 million, and financing cash flow was positive $113.7 million. Cash and due from banks ended at $8.9 million; interest-bearing deposits at other institutions were $46.4 million.
Financial position and liquidity
- At September 30, assets were $1.175 billion, up 11.6% from year-end 2017. Net loans were $969.7 million, versus $881.0 million; deposits were $994.0 million, versus $928.2 million.
- Loan growth was concentrated in commercial real estate and construction. Gross loans were $979.5 million; the allowance was $8.6 million, or 0.88% of loans. The allowance was $7.7 million, or 0.87%, at year-end 2017.
- Available-for-sale securities had a fair value of $111.4 million, down from $116.0 million at year-end. Unrealized losses were $5.1 million versus $2.2 million; accumulated other comprehensive loss worsened by $2.3 million during the nine months, primarily reflecting market-value declines in securities.
- Liabilities included $15.0 million of federal funds purchased and $24.4 million of subordinated notes. The notes carry a 6% fixed rate through June 2021, then reset to three-month LIBOR plus 487 basis points; maturity is June 2026.
- Liquid assets were $166.7 million, or 14.2% of assets. The bank reported $144 million of unsecured correspondent-bank lines, with $15 million drawn, and additional secured borrowing capacity. Shareholders’ equity was $138.8 million; the company’s total risk-based capital ratio was 16.19%, and the bank’s was 13.85%. Both were described as well capitalized.
Changes, transactions, and management commentary
- Compared with Q3 2017, Q3 net income rose 51%, as higher net interest income and noninterest income more than offset increased provision and operating costs. Loan growth and higher earning-asset yields supported net interest income; deposit funding costs also increased.
- Nine-month net income increased to $9.46 million from $6.68 million. Noninterest expense increased 18%, primarily due to staffing for growth and $0.67 million of Colombo-related merger costs.
- Loan-swap fees contributed to higher Q3 noninterest income; the company reported $0.43 million of loan-swap fees for the first nine months. Prior-year nine-month noninterest income included a $0.44 million BOLI claim.
- The September IPO issued 1.75 million shares at $20, producing $35.0 million gross and $31.8 million net proceeds. A partial overallotment after quarter-end added approximately $1.7 million net proceeds; reported total net offering proceeds were approximately $33.5 million.
- On October 12, 2018, after the reporting date, the company completed its acquisition of Colombo Bank. It issued 763,051 shares and added five locations. Colombo had $188.7 million of assets, $147.1 million of loans, and $138.7 million of deposits at September 30; its results are not included in this quarter.
- No specific earnings or financial guidance is provided. Management described continued organic growth and market expansion, and said it expected liquidity to remain sufficient for depositor needs, reasonable growth, and regulatory requirements.
Risks, contingencies, and unusual items
- Asset quality indicators were mixed: nonperforming assets rose to $5.89 million, or 0.50% of assets, from $4.66 million, or 0.44%, at year-end. Nonperforming loans were $2.02 million, including $1.25 million 90 days or more past due and still accruing; nonaccrual loans were $0.77 million. The allowance equaled 424% of nonperforming loans.
- Commercial real estate, including construction lending, represented 75.4% of the loan portfolio. Management cautioned that economic weakness or declines in real estate values could increase delinquencies, defaults, and credit losses.
- Off-balance-sheet exposure included $42.7 million of commitments to grant loans, $188.9 million of unused loan and credit-line commitments, and $9.2 million of commercial and standby letters of credit. These contractual amounts do not necessarily represent future cash needs.
- Municipal deposits represented 12.7% of deposits and were secured by an FHLB letter of credit. Management noted that loss of significant deposit relationships or market disruption could affect liquidity and replacement funding costs.
- Interest-rate modeling showed a 1.2% increase in one-year net interest income under a 100-basis-point rate increase, but a 3.7% decline in economic value of equity under that scenario. The company reported stress measures within board limits.
- Management reported no material legal proceedings and concluded disclosure controls were effective, with no material quarterly change in internal control over financial reporting. The filing states that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Colombo acquisition integration, resulting costs, realized synergies, and post-close credit and deposit trends.
- Loan concentration and asset-quality trends, particularly commercial real estate/construction exposure and increases in past-due loans.
- Deposit mix, municipal-deposit concentration, funding costs, and actual availability of contingent borrowing sources.
- Interest-rate sensitivity assumptions and the effect of rising deposit costs on future margins and earnings.
- The 10-Q cover page appears to mark “No” for filing all required reports during the preceding 12 months; confirm the checkbox and reporting-status context.