FVCBankcorp(US:FVCB)2019-03-29 18:14Liquidity and Funding - Liquidity risk could impair the company's ability to fund operations and meet obligations, potentially adversely affecting growth, profitability, and financial condition[158]. - The company relies on customer deposits and advances from the Federal Home Loan Bank of Atlanta (FHLB) for funding, with brokered deposits representing approximately 7.3% of total deposits as of December 31, 2018[160][174]. - The company has established a brokered deposit to total deposit tolerance ratio of 15% to support future growth[174]. - The company may need to increase reliance on FHLB borrowing or attract additional non-brokered deposits if brokered deposits become less accessible[174]. - Liquid assets totaled $167.0 million at December 31, 2018, representing 12.4% of total assets, ensuring sufficient liquidity[369]. - The company had additional borrowing capacity of approximately $126.8 million with the FHLB and $62.6 million with the FRB as of December 31, 2018[369]. - The company has established a formal liquidity contingency plan to manage liquidity effectively under various stress scenarios[368]. Capital and Regulatory Compliance - Regulatory requirements may necessitate higher capital levels due to the concentration in commercial real estate lending, potentially limiting growth[171]. - The company is required to maintain a common equity Tier 1 capital ratio of 4.5% and a total risk-based capital ratio of 8% under the Basel III regulatory capital reforms[216]. - The capital conservation buffer was 1.825% as of December 31, 2018, which is below the fully phased-in requirement of 2.5%[216]. - Regulatory capital rules may require the company to maintain higher capital levels, especially during times of internal growth or acquisitions[219]. - The total risk-based capital ratio was 14.02% at December 31, 2018, compared to 12.83% at December 31, 2017, indicating improved capital adequacy[358]. - The common equity Tier 1 capital ratio was 13.27% at December 31, 2018, exceeding the minimum requirement of 6.375%[364]. - The company is classified as "well capitalized" for regulatory purposes, meeting all capital requirements[358]. - The company faces potential adverse effects from changes in regulatory compliance costs and requirements, which could impact operations and financial condition[210]. - The company is subject to extensive regulation, and any noncompliance could result in sanctions or enforcement actions that may adversely affect its business[222]. - The company must comply with fair and responsible banking laws, and failure to do so could lead to sanctions, including civil money penalties and restrictions on operations[223]. Financial Performance - Net income for the year ended December 31, 2018 was $10.9 million, compared to $7.7 million for the same period in 2017[278]. - Excluding merger-related expenses, net income would have been $13.4 million, or $1.05 per diluted common share, for 2018[278]. - Return on average assets for 2018 was 0.94%, up from 0.80% in 2017[280]. - Return on average equity for 2018 was 9.29%, compared to 8.63% in 2017[280]. - The effective tax rate decreased to 17.1% in 2018 from 47.1% in 2017, primarily due to discrete tax benefits from nonqualified stock options[308]. Loan Portfolio and Credit Risk - As of December 31, 2018, commercial real estate loans represented 353.0% of the company's total risk-based capital, indicating a significant concentration risk[171]. - Approximately $797.3 million, or 70.1%, of the loan portfolio was originated in the past three years, raising concerns about the seasoning and potential credit defaults[172]. - The commercial real estate portfolio constituted 73.5% of the total loan portfolio, indicating a concentration of credit risk[326]. - The provision for loan losses was $1.9 million in 2018, compared to $1.2 million in 2017, with the allowance for loan losses at $9.2 million[297]. - The allowance for loan losses increased to $9,159 thousand, with a ratio of 0.81% to net loans receivable[330]. - Nonperforming assets increased to $7,435 thousand, representing 0.57% of total assets, up from 0.44% in the previous year[318]. - The company recorded a significant decrease in troubled debt restructurings (TDRs), down to $203 thousand from $1,671 thousand in the previous year[320]. Growth and Expansion - The company experienced record growth for the years ended December 31, 2018, and 2017, driven by market expansion through organic growth and acquisitions[274]. - Total assets increased to $1.35 billion, up $298.4 million or 28.3% from December 31, 2017[275]. - Total loans increased by $248.1 million, or 27.9%, from December 31, 2017 to December 31, 2018[275]. - Total deposits rose by $234.3 million, or 25.2%, from December 31, 2017 to December 31, 2018[275]. - The company may face challenges in retaining key employees, which could adversely affect its ability to execute business strategy and growth[166][167]. - Future expansion or acquisition activities may not prove profitable or enhance shareholder value, with risks associated with integration and customer retention[175][176]. Operational Risks - The company may face substantial risks and uncertainties when implementing new lines of business or products, which could adversely affect its financial condition and results of operations[180]. - The company relies on the accuracy of information provided by customers and counterparties, and misleading information could negatively impact its financial condition and reputation[181]. - The company depends on third-party information technology and telecommunications systems, and failures in these systems could disrupt operations and adversely affect financial condition[182]. - Cybersecurity risks and potential security breaches could lead to significant financial loss and harm to the company's reputation[185]. - The company’s risk management framework may not effectively mitigate risks, potentially leading to unexpected losses[189]. - Environmental risks associated with foreclosed real estate assets could lead to substantial remediation costs and negatively affect the company's financial condition[197]. - Legal and regulatory actions could result in significant fines and increased expenses, adversely affecting the company's business operations and reputation[200]. Interest Rate Risk - The company's net interest income is projected to increase by 1.0% in a scenario of a 100 basis point rate increase and by 2.7% in a 400 basis point increase over one year[383]. - Over a two-year horizon, net interest income is expected to rise by 3.5% in a 100 basis point increase scenario and by 10.8% in a 400 basis point increase scenario[383]. - The asset/liability position was asset sensitive as of December 31, 2018, indicating a favorable response to rising interest rates[383]. - The company employs an independent consulting firm to model interest rate sensitivity, using a net interest income simulation model as the primary tool[380]. - Stress testing of the balance sheet and net interest income is conducted using instantaneous parallel shock movements in the yield curve of 100 to 400 basis points[381]. - All interest rate risk stress tests measures were within the board policy established limits for each increased rate scenario as of December 31, 2018[383]. Noninterest Income and Expenses - Noninterest income decreased by $1.3 million to $1.7 million for the year ended December 31, 2018[279]. - Noninterest expense increased by $7.1 million to $26.4 million for the year ended December 31, 2018, primarily due to acquisition-related expenses[279]. - Total non-interest expense increased to $26.4 million in 2018 from $19.3 million in 2017, with salaries and benefits expense rising by $2.3 million[304]. Investment Securities - As of December 31, 2018, the fair value of the company's investment securities portfolio was approximately $125.3 million, which is subject to fluctuations due to external factors[205]. - The fair value of available-for-sale investment securities increased to $123.5 million at December 31, 2018, up by $7.6 million or 6.5% from $116.0 million at December 31, 2017[334]. - The total investment securities portfolio was $128.4 million at December 31, 2018, compared to $119.9 million at December 31, 2017[340]. - Mortgage-backed securities comprised 89.05% of available-for-sale securities, totaling $114.4 million at December 31, 2018[340]. - The weighted average yield for held-to-maturity securities was 2.91% as of December 31, 2018[344].