FVCBankcorp(FVCB) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for FVCBankcorp, Inc. as of June 30, 2020, and for the three and six-month periods then ended Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,781,149 | $1,537,295 | | Loans, net | $1,465,226 | $1,260,295 | | Total Deposits | $1,519,036 | $1,285,722 | | Total Liabilities | $1,600,497 | $1,358,217 | | Total Stockholders' Equity | $180,652 | $179,078 | Consolidated Income Statement Highlights (Unaudited) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $12,695 | $12,371 | $24,906 | $24,135 | | Provision for loan losses | $1,750 | $505 | $2,816 | $1,020 | | Net Income | $2,880 | $4,085 | $6,613 | $8,011 | | Diluted EPS | $0.21 | $0.28 | $0.46 | $0.54 | Notes to Consolidated Financial Statements The notes provide detailed information on the company's accounting policies and financial statement line items, focusing on COVID-19 impacts and new accounting standards - In response to the COVID-19 pandemic, the company modified 277 loans totaling $360.2 million (24.4% of the total loan portfolio) through payment deferral programs, which are not considered troubled debt restructurings[39][49] - The company originated 755 PPP loans totaling $169.4 million as of June 30, 2020, which are fully guaranteed by the U.S. government[40] - The company has not yet adopted ASU No. 2016-13 (CECL), with the standard effective for fiscal years beginning after December 15, 2022, for smaller reporting companies[42] Loan Portfolio Composition (June 30, 2020) | Loan Type | Total (in thousands) | | :--- | :--- | | Commercial real estate | $778,908 | | Commercial and industrial | $279,919 | | Commercial construction | $228,641 | | Consumer real estate | $178,665 | | Consumer nonresidential | $18,795 | | Total Gross Loans | $1,484,928 | Allowance for Loan Losses Activity (Six Months Ended June 30, 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Beginning Balance (Jan 1, 2020) | $10,231 | | Provision | $2,816 | | Charge-offs | ($180) | | Recoveries | $27 | | Ending Balance (June 30, 2020) | $12,894 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 and H1 2020, highlighting the significant impact of the COVID-19 pandemic - Total assets grew by $243.9 million (15.9%) to $1.78 billion since year-end 2019, primarily due to $169.4 million in PPP loan originations[212] - Net income for Q2 2020 was $2.9 million, down from $4.1 million in Q2 2019, mainly due to a $1.8 million provision for loan losses and $0.7 million in one-time branch closure costs[212] - As of July 31, 2020, COVID-related loan modifications had reduced to 165 loans totaling $226.7 million (15.3% of the portfolio), down from $360.2 million at the peak[218] - The company temporarily suspended its share repurchase program due to COVID-19 uncertainty after repurchasing $7.3 million of common stock in Q1 2020[225] Results of Operations Net income for Q2 2020 decreased to $2.9 million due to higher loan loss provisions and a one-time branch closure cost Net Interest Margin Analysis (Q2 2020 vs Q2 2019) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Net Interest Margin (Tax-equivalent) | 3.16% | 3.59% | | Yield on Interest-Earning Assets | 4.03% | 4.91% | | Cost of Interest-Bearing Liabilities | 1.30% | 1.87% | - The provision for loan losses increased to $1.8 million for Q2 2020 and $2.8 million for the first six months of 2020, reflecting changes in qualitative factors due to the COVID-19 pandemic[280] - The company incurred a one-time impairment charge of $0.7 million on right-of-use assets and leasehold improvements due to the closure of two branch locations[285] - For the six months ended June 30, 2020, noninterest income was impacted by a $0.5 million loss on the reclassification of consumer unsecured loans from 'held for sale' to 'held for investment'[282] Financial Condition Total assets reached $1.78 billion, driven by PPP loans, with improved asset quality and strong capital levels Asset Quality Metrics | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Nonperforming Assets (NPAs) | $12.4 million | $14.6 million | | NPAs / Total Assets | 0.69% | 0.95% | | Allowance for Loan Losses / NPLs | 151.82% | 95.39% | | Allowance for Loan Losses / Total Loans | 0.87% | 0.81% | - Special mention loans decreased by $9.5 million and substandard loans decreased by $4.6 million from December 31, 2019, primarily due to loan payoffs, including a $3.9 million TDR[299] - The Bank's Community Bank Leverage Ratio (CBLR) was 11.05% at June 30, 2020, exceeding the temporary 8% regulatory requirement for well-capitalized status[343][346] - The company maintains strong liquidity, with liquid assets at 11.9% of total assets and additional borrowing capacity of approximately $120.9 million at the FHLB and $51.4 million at the FRB[356] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk using NII simulation and EVE models, with all measures within board-approved policy limits Interest Rate Sensitivity Analysis (1-Year Horizon) | Change in Interest Rates (bps) | % Change in Net Interest Income (as of June 30, 2020) | | :--- | :--- | | +400 | -3.41% | | +300 | -2.56% | | +200 | -2.14% | | +100 | -1.39% | | -100 | +1.50% | Economic Value of Equity (EVE) Sensitivity Analysis | Change in Interest Rates (bps) | % Change in EVE (as of June 30, 2020) | | :--- | :--- | | +400 | +7.42% | | +300 | +7.03% | | +200 | +5.75% | | +100 | +3.28% | | -100 | +1.51% | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020 - The company's principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by the report[376] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are likely to materially affect, internal controls[377] PART II — OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any material legal proceedings, nor is it aware of any such threatened proceedings - In the ordinary course of operations, the company may become party to legal proceedings, but it is not currently party to any that are considered material[380] Risk Factors This section updates the company's risk factors, primarily focusing on the significant and unpredictable adverse effects of the COVID-19 pandemic - The primary updated risk factor is the ongoing COVID-19 pandemic, which has had a material adverse impact on the macroeconomic environment and increased economic uncertainty[382] - Specific pandemic-related risks include increased loan losses, declining real estate collateral values, reduced net interest margin, operational disruptions, and heightened cybersecurity threats[383] - The ultimate impact of the pandemic is highly uncertain and difficult to predict, and loan deferral programs could delay the identification of asset quality deterioration[385] Unregistered Sales of Equity Securities and Use of Proceeds The company details its share repurchase activity for the first half of 2020, with the program temporarily suspended due to COVID-19 uncertainty - For the six months ended June 30, 2020, the company repurchased and cancelled 487,531 shares of its common stock at an average price of $14.90, for a total of $7.3 million[387] - All share repurchase activity occurred during the first quarter of 2020; the program was subsequently suspended due to the impact of COVID-19[387] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL formatted financial statements - Exhibits filed with the report include Rule 13a-14(a) and Section 1350 certifications from the CEO and CFO[392] - The report includes financial data formatted in both XBRL and Inline XBRL[392]